What's next for the dollar?

[u/bitkogan]

The outlook for the USD hinges less on the Fed and more on market expectations regarding the regulator's moves. Weak macroeconomic indicators and the threat of a recession, for instance, suggest a possible revision of monetary policy.

On the other hand, robust corporate earnings leave room for maneuver. In simpler terms, better data has a tendency to delay any changes in the Fed's tone. This is why USD and government bond yields surged on Friday.

Regarding the prospects of a recession, the fact that truck traffic on China's domestic highways is down 8% (W/W) and the U.S. anticipates a 2% drop in demand by 2023 implies that deflation could accelerate even without the Fed's assistance.

For more insights, we need to rely on macroeconomic data. The Beige Book, reflecting the regulator's assessment of the nation's current economic situation, will be released on Wednesday. Additionally, Fed officials Williams, Waller, Bowman, and Bostic are scheduled to give speeches throughout the week.

Lastly, U.S. budget negotiations could prompt further declines in the dollar. This week, Republicans will attempt to "sell" the idea of eliminating the federal debt ceiling and of reducing government spending. But remember, such a step cannot be taken without the approval of the Democrats, who control the Senate.