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Weekly Market Outlook: PCE to excite US Dollar after Hawkish Fed

US Dollar: Increasing Bullish Momentum 

After the unexpected hawkish tone following Fed’s meeting last week, the USD now is looking for other support from major data including PCE inflation and flash PMI reading. PCE inflation is expected to jump on an annual basis from 3.6% to 4% in the 12 months ended in May, with core PCE inflation seen at 3.5%, compared to 3.1% previously. PCE or Personal Consumption Expenditures is the favorable inflation gauge used by the Federal Reserve Committee. 

Such an uptick in price pressure could push the Fed to step in sooner than expected, especially after last week’s meeting reflected concerns about the transitory inflation narrative. Now policymakers are expecting a sooner rate hike in 2022 followed by another two hikes in 2023. 

The changes in the committee’s outlook supported the dollar index to trade by more than 1.9% higher. Positive data release would push DXY towards next resistance levels at 92.50 and 93.00. 

Flash PMI readings, however, are expected to show slower growth in both manufacturing and services sectors during June. Flash Manufacturing PMI is expected at 61.5, while Flash Services PMI is expected at 70.0.

On Tuesday, Fed Chair Jerome Powell will be testifying on the Fed’s emergency lending programs and current policies before the House Select Subcommittee on the Coronavirus Crisis. His comments will be watched carefully by USD traders for any clues about future monetary policy paths. 

GBP: Will Bank of England join the Hawkish Camp?

The Bank of England is scheduled to meet on Thursday, with no changes expected in monetary policy settings.  There will be no press conference or updated economic forecasts, so the main focus will be on the conducted tone through the policy statement. The bank is expected to hold interest rates at 0.10%, and maintain asset purchases at 895B. 

Probably, BoE will take much longer before deciding whether to further reduce its asset purchase programme or extend QE beyond the end of 2021. But like its counterparts, there could be some unexpected twists. 

A surprising hawkish tone would definitely help the pound to gain some ground against rivals, after major setbacks. Know How Central Banks Affect Your Forex Trading Decisions?

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EUR: Lagarde speech and PMIs eyed

In the eurozone, all focus will be on ECB President Lagarde who is scheduled to testify at a virtual hearing before the European Parliament Economic and Monetary Affairs Committee on Monday. 

The speech will be followed by the block’s PMI data on Wednesday. The manufacturing PMI is expected to print a slower growth in June at 62.1, retreating from record highs in the past three months. While the services PMI is forecast to grow further in June, hitting 57.6. The service sector may receive some support as eurozone countries begin lifting restrictions and reopening their economies. 

Euro has been traded mildly unchanged, but positive comments from Christine Lagarde and PMI data could help revive the single currency. 


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