US Dollar weakened after International Monetary Fund's (IMF) global economy outlook report, and the current US situation at the Washington summit was also commented by US Treasury Secretary Janet Yellen. The content of the commentary was in line with what today's Axios analysis and didn't surprised financial markets. Yellen emphasized the resilience and strength of the U.S. economy and the stability of the banking sector but the comment failed to help the dollar index (USDIDX).
The situation in the US economy was again commented on by John C. Williams, head of the New York Fed. The dollar index is weakening as investors following the IMF analysis saw the Fed's rate hike cycle coming to an end which may herald the lack of significant support for the dollar's strength that has been building since 2022, with US systemic uncertainty in the background. Although the chances of a hike in May increased after the NFP data, its fate is still uncertain and its impact on USD strength almost 'theoretical'.
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- IMF head of markets research Gourinchas conveyed that the Fed, the European Central Bank and the Bank of England are nearing the end of their rate hike cycles;
- The IMF expects U.S. economic growth to reach 1.6% in 2023, compared to the 1.4% estimated in January, and 1.1% y/y growth in 2024 (a staggered slowdown).
Yellen
- The banking system in the United States is healthy, with strong capital and liquidity positions, the global financial system is resilient;
- Given the war in Ukraine and recent pressures on banking systems, we remain cautious on inflation risks;
- Price pressures in the United States remain excessive, but have declined over the past six months.
Fed Williams
- I don't think we need to change our balance sheet policy in the near term. QT is proceeding at a rapid pace;
- The banking system has really stabilized after the last crisis. If inflation falls, we will have to lower interest rates.
- One more rate hike is reasonable but we will watch the data including retail sales and CPI inflation;
- If inflation becomes more persistent, we will have to adjust policy accordingly;
- Bank failures have increased uncertainty about the outlook. We need to see a decline in core inflation;
- We have brought policy to a restrictive level. The impact of the credit turmoil in the banks is uncertain and it is too early to estimate its impact.
USDIDX chart, H4 interval. The dollar index reacted by falling below the 38.2 Fibonacci retracement of the wave started in Q1 2021, near 105 points. Since mid-March, when investors learned the extent of the banking sector's problems, the bulls have had a clear problem with rising above the SMA100 (black line). Source: xStation5
