In June, the Federal Reserve's monetary policy committee unanimously decided to keep interest rates unchanged for the seventh consecutive meeting. The Fed acknowledged that inflation is making moderate progress towards the 2% target but still believes in maintaining restrictive interest rates to keep prices under control. The Fed needs sufficient confidence before it can start cutting rates. According to the latest "dot plot" projections, the Fed may only cut rates once this year, possibly delaying any action until December. 

Looking at June, most of the economic data released in the U.S. indicates signs of economic slowdown. Only the early month's non-farm payroll data and subsequent PMI figures for manufacturing and services showed relatively strong performance. Other indicators, such as retail sales, consumer confidence, and most housing data, were less than ideal. The latest inflation data also shows a decline. In my view, the Fed's monetary policy direction for this year may not be as conservative as the June dot plot suggests. However, the Fed officials' policy stance remains cautious, with no clear support for a rate cut in the short term. Due to this uncertainty, the U.S. Dollar Index has maintained its trajectory within the upward channel established earlier this year, repeatedly testing the 105.60 level. 

Nevertheless, the latest interest rate futures market indicates that investors believe there is nearly a 60% chance of a rate cut by the Fed in September, with the possibility of another cut by the end of the year, which diverges somewhat from the dot plot forecasts. I concur with the market's outlook. As long as U.S. inflation does not rebound, the Fed is likely to swiftly shift its monetary policy stance if it sees continued economic slowdown. The U.S. presidential election is scheduled for November 5th, with the Fed’s policy meeting on November 5th-6th. If rate cuts do not commence in September, it is highly probable that action will be postponed until December or may not happen this year at all. If my predictions are correct, the upside for the Dollar Index may be limited to just 100-150 points. Therefore, starting to short the dollar in phases around the 106 level, with a stop-loss above 107.30, seems prudent. 

It's worth noting that following the European Parliament election defeat, French President Emmanuel Macron dissolved the National Assembly and announced early elections, hoping to quickly curb the momentum of the far-right National Rally. However, recent polls show significant support for the far-right, which remains substantially ahead, with the ruling coalition falling to third place. If the far-right wins, it could pose a significant challenge to the stability of the European Union and place considerable pressure on the Euro, with the 1.06 level being a crucial support.

Patrick Law

Chief Operating Officer of Hantec Group