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Fed Preview: Two 5-Letter Words Could Make Or Break U.S. Dollar

By Kathy LienForexJul 27, 2021 05:02PM ET
www.investing.com/analysis/fed-preview-two-5letter-words-could-make-or-break-us-dollar-200594030
Fed Preview: Two 5-Letter Words Could Make Or Break U.S. Dollar
By Kathy Lien   |  Jul 27, 2021 05:02PM ET
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The U.S. dollar traded lower against the euro and Japanese Yen ahead of Wednesday’s Federal Reserve’s monetary policy announcement. This sell-off was driven by a combination of lower yields and weaker economic data. New home sales, which were expected to rebound in June, declined for the second month in a row. With existing and new home sales falling, the overheated housing market could finally be cooling. Ten-year Treasury yields also dropped 4.4% as the S&P 500 ended the day lower for the first time in six trading days.   
 
It is widely believed that the July FOMC statement will remain virtually unchanged. From the threat of the highly contagious Delta virus variant, expiring eviction moratorium and extra unemployment benefits, there are just too many uncertainties for the Fed to press the pedal on taper. U.S. data has also been mixed. Considering that most policy-makers believe that inflation is transitory, they can wait until their symposium at Jackson Hole in August or even September to see if these uncertainties have a significant impact on the economy. This afternoon, the White House said there’s “no significant signs” of economic impact from the Delta variant, but if restrictions in the U.S. returns, then the outlook will darken quickly. Just today, the Center for Disease Control and Prevention adjusted its mask guidance to recommend that fully vaccinated people resume wearing masks indoors in states where the virus is surging. It also recommended mask wearing in schools for teachers, staff, students and visitors regardless of vaccination status.
 
But if we are wrong and one of two five-letter words (Delta or Taper) make their way into the FOMC statement, we will see a big reaction in the U.S. dollar. If the Fed includes concerns about the Delta variant, the U.S. dollar could extend its slide quickly. If it shrugs off those worries and officially acknowledge that taper is coming, the U.S. dollar will soar. We don’t think either will make its way into the FOMC statement, but Fed Chairman Jerome Powell will be pressed to discuss both. He’s previously suggested that virus variants could complicate the U.S. recovery and there’s little doubt that he’ll express the same concerns tomorrow. However, when the Fed last met, it admitted that members talked about talking taper. And even if no official announcement is made on Wednesday, discussions will increase in the weeks ahead. 
 
The sell-off in the U.S. dollar on Tuesday is a sign that investors expect more caution than optimism from the Fed. And if they are right, USD/JPY could extend its slide towards 109.00 and EUR/USD could squeeze above 1.1850. Unless there are significant changes to the FOMC statement or Powell’s outlook, we don’t expect big moves in currencies. 
 
Unlike the euro and sterling, the sell-off in stocks and risk aversion drove the Australian, New Zealand and Canadian dollars lower against the greenback. Inflation numbers are due from Australia and Canada tomorrow, and while both reports are expected to be strong, the impact on AUD and CAD should be limited ahead of FOMC. The economic ramifications of lockdowns in Australia matters more to the central bank than inflation right now. For the Bank of Canada, higher prices validates its recent decision to reduce asset purchases.
Fed Preview: Two 5-Letter Words Could Make Or Break U.S. Dollar
 

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Fed Preview: Two 5-Letter Words Could Make Or Break U.S. Dollar

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Comments (22)
Luqman Firdaus
Luqman Firdaus Aug 01, 2021 6:54AM ET
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swimmingpool
Luqman Firdaus
Luqman Firdaus Aug 01, 2021 6:53AM ET
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Diego Reyes
Diego Reyes Jul 29, 2021 1:51PM ET
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covid is TRANSITORY, inflation DON'T we all are getting crazy and the market's reflecting it
Nicolas Duran
Nicolas Duran Jul 28, 2021 12:10PM ET
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Why get the shot?Ivermectin
Md Imran Khair
Md Imran Khair Jul 28, 2021 11:44AM ET
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i can't know, why do it me
David Keller
David Keller Jul 28, 2021 8:13AM ET
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Great read, thanks for the contribution!
saeed kalantar
saeed kalantar Jul 28, 2021 7:52AM ET
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good
Julius Joseph Guay IV
Julius Joseph Guay IV Jul 28, 2021 7:14AM ET
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Thank you !
parviz bakhshi
parviz bakhshi Jul 28, 2021 4:03AM ET
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thank
Samuel ndossi
Samuel ndossi Jul 28, 2021 3:04AM ET
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🙏
Mohamed Aljadeedi
Mohamed Aljadeedi Jul 28, 2021 2:47AM ET
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👍🏻
Abel Mushi
Abel Mushi Jul 28, 2021 1:27AM ET
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Thank you Kathy be blessed
Joe Lane
Joe Lane Jul 28, 2021 1:10AM ET
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After over a year of the media shouting," COVID YOUR ALL GONNA DIE". Most Americans have become numb to the covid reports. All you have to do is walk into any store and look at the number of people wearing masks and you realize all the alarmists have lost the attention of the population.
Uri Tolkowsky
Uri Tolkowsky Jul 28, 2021 12:49AM ET
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I agree, the FED isn’t mandated nor qualified to express concerns about the Delta Variant unless it’s based on sufficient data and research, which it doesn’t have at this point given the premature state of the Delta outbreak in the U.S. On the other hand, talking taper would be highly unlikely given that the outlook for economic recovery has been , to a certain extent, compromised in light of the recent wave of infections.
saradhi rao
saradhi rao Jul 28, 2021 12:46AM ET
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Thank you Kathy
KC Madhavan
KC Madhavan Jul 27, 2021 8:47PM ET
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Kathy is the best
Chris Black
ChrisBlackforex Jul 27, 2021 8:41PM ET
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You’re the best can’t do a trade without your Articles?
gopa goma
gopa Jul 27, 2021 8:08PM ET
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no tapering until next year. and us dollar go for short.
Nicky Nick
Nicky Nick Jul 27, 2021 6:19PM ET
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the delta variant will not close anything down. Americans prefer to see each other die than stop eating fast food at their local diner
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Chris Poulos
Chris Poulos Jul 27, 2021 6:19PM ET
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americans are pretty lame
Alexander Laur
Alexander Laur Jul 27, 2021 6:19PM ET
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Delta-shmelta...   'MERICA!
Kevin Mack
Kevin Mack Jul 27, 2021 6:19PM ET
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Diners dont serve fast food.
the jasomniax
the jasomniax Jul 27, 2021 6:19PM ET
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i laughed so hard at this xD
Tyrone Jackson
Tyrone Jackson Jul 27, 2021 6:19PM ET
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Except those Americans are not really Americans They are 3 rd world refugees that don’t know any better. Black brown. Asians are to smart for that- and the real Americans don’t live anywhere near a fast food joint. They are out 35 miles in the country. Inner city dwellers and other countries rejects make up most of America today. Rich white gay or straight- lives high in the mountains and eating vegan/ organic Kobe beef. Yoga and golf, mountain biking and weight lifting is what the beautiful people do.
Ezege Ezege
Ezege Ezege Jul 27, 2021 6:04PM ET
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so please I need help to create my account
Freeman MENO
Freeman MENO Jul 27, 2021 6:04PM ET
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what account?
Ezege Ezege
Ezege Ezege Jul 27, 2021 6:04PM ET
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this business account so that I can trade
Hariharan Elumalai
Hariharan Elumalai Jul 27, 2021 6:02PM ET
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Nice analysis. Thank you!
Ezege Ezege
Ezege Ezege Jul 27, 2021 6:00PM ET
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help me am new
Freeman MENO
Freeman MENO Jul 27, 2021 6:00PM ET
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Ezege Ezege
Ezege Ezege Jul 27, 2021 6:00PM ET
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to create account
 
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