DXY (U.S. dollar) Fundamental Forecast Correct | Euro-zone

While the US Dollar Index (DXY) has recovered quickly from the weaker-than-expected Non-Farm Payrolls (NFP) data, the greenback may face headwinds ahead of the Federal Open Market Committee's (FOMC) interest rate decision on September 22 as inflation is expected to fall for the first time this year, according to the Conference Board's. In the United States, the headline CPI reading is predicted to decrease to 5.3 percent in August after being constant at 5.4 percent for two months, while the core rate of inflation is expected to fall for the second month in a row. As the Federal Open Market Committee (FOMC) admits that "the economy has not yet achieved the Committee's broad-based and inclusive maximum-employment goal," evidence of slower price growth may prompt a bearish reaction in the US dollar, and the central bank may stick to its current monetary policy path, as Chairman Jerome Powell insists that "we have much ground to cover to achieve maximum employment." In contrast, signs of sticky inflation may trigger a positive reaction in the US Dollar, putting pressure on the FOMC to normalize monetary policy sooner rather than later.

It is unclear if Fed officials would make major revisions to the Summary of Economic Projections (SEP), since "several participants highlighted that there were upside risks to inflation linked with worries that supply had evaporated." Fresh developments from the US economy are likely to sway the Greenback ahead of the next Fed rate decision as the central bank enters its media blackout period, but the break of the monthly opening range raises the possibility of a further advance in the US Dollar Index (DXY), which appears to have reversed course ahead of the August low (91.82).

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