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Week Ahead – Dollar rally accelerates on Hawkish Fed

The steepening trade is dead for now as Treasury flattening accelerates.  The Fed’s super hawkish pivot is sending short-term Treasury yields and the US dollar higher.  The Fed is no longer in an ultra-accommodative stance, they are now just pretty accommodative. The two-year Treasury yield has rallied to 0.27%, while the 30-year yield continues to plunge towards 2.00%.

Falling bond yields on the long end could remain the trade as history suggests that when the Fed begins to signal the removal of accommodation, the curve will flatten.  Next week is filled with Fed speak that could show more policymakers are turning hawkish given the Fed’s overall surprise with pricing pressures this year.  Currency markets are bracing for potentially more dollar momentum as the Fed has signaled they are now not willing to tolerate much inflation over the next year.

In addition to getting clarity over the Fed’s message, Wall Street will pay close attention to a wrath of rate decisions, US and European flash PMIs, and US personal income and spending data. Both the Czech and Hungary central banks are expected to raise rates, while the BOE could start seeing more dissents over tapering its asset  purchases.  Commodity traders will closely watch to see if the broader commodity selloff continues.

Fed speak to deliver clarity over FOMC hawkish tilt [1]

Emerging Markets begin tightening [2]

Crude price volatility picks up [3]




After the Fed took the bond market on a rollercoaster ride, the upcoming week is all about getting more clarity over what it will take to get tapering started sooner.  Eleven Fed speakers and the release of Fed’s bank stress results will draw most of the attention.  Fed Chair Powell’s testimony to Congress on Wednesday will closely be watched as some lawmakers will question the need to keep the current level of accommodation.

The main economic release of the week will be the flash PMIs which should show a modest decline across both manufacturing and the service sector.  The second most important release will be US personal income and spending, which comes along with the Fed’s preferred inflation metric.



France holds regional elections on Sunday (June 13), with a second round of voting on June 27. The elections are a key test for President Emmanuel Macron, ahead of the presidential vote in 2023.

On Monday, ECB President Christine Lagarde will deliver remarks before the European Parliament Economic and Monetary Affairs Committee.

The Eurozone and Germany release May Flash PMI reports on Wednesday. Manufacturing remains a bright spot, with German Manufacturing PMI expected at 64.4 and the Eurozone at 62.6, well into expansionary territory.

The services sector is also showing growth. The Services PMIs are expected to accelerate in May, with estimates of 55.0 in Germany and 57.3 in the Eurozone.


On Thursday, the BoE holds a p0licy meeting. The bank is widely expected to maintain the Official Bank Rate at 0.10% and QE at 895 billion pounds.

May CPI rose above the BoE’s target of 2%, but the bank is expected to reiterate that higher inflation is transient. Even with this recent surge, inflation is projected to fall back below the 2% level in the first half of 2022. There continues to be a debate as to when the BoE will tighten policy, but it is looking more likely that the bank will press the trigger and raise rates in 2022.


Emerging Markets

Czech Republic

The Czech central bank will announce a rate decision on Wednesday. The bank is expected to raise the Repurchase Rate 25 basis points to 0.50%, to curb rising inflation. This would mark the first-rate hike by the bank since the Covid pandemic.


On Tuesday, Hungary’s central bank is expected to raise its benchmark base rate by 30 basis points, to 0.90%. Hungary is experiencing the fastest inflation in the EU, and a rate hike would be the first by an EU member.


The only data of note is on Monday when China is expected to leave its one and five-year Loan Prime Rates unchanged. It would be a huge surprise if China hiked this week (Q4 earliest expected) as the PBOC contents itself with withdrawing liquidity via the repo market. A hike would be a huge negative for local equities.

Elsewhere China has temporarily forced down commodity prices, but that has yet to lift local equities. As a net importer, it is a battle it will eventually lose and that is reflected in equity markets.

China’s clampdown on tech continues with anti-trust launched against Didi Chuxing which is coincidentally nearing a US IPO. China’s interventions in recent times continue to weigh on equity sentiment.


India’s COVID-19 cases appear to be on the right track as cases fall.  That has led to increased buying of oil by importers which has put a floor under USD/INR over the last week as parts of the country reopen. USD/INR has rallied spectacularly this week from 73.1000 to 71.100, accelerating after the FOMC lifted the US Dollar globally. Combined with the return of oil importers, upward pressure will remain on USD/INR.

If US bond yields finally react to the FOMC by rising, the pressure on the INR and local equities will increase.

There are no significant data releases this coming week.

Australia & New Zealand

Blockbuster data releases in Australia (employment), and New Zealand (GDP) lifted the Australian and New Zealand Dollars on Thursday. The rally was short-lived as both were overwhelmed by the post-FOMC US Dollar rally. AUD and NZD have both suffered 2.0% losses for the week as measures of global risk sentiment. Both are sitting near support zones at 0.7500 and 0.6950 and failure opens up potential 200 to 300 point moves lower in the coming week.

The data calendars are quiet with neither Australia Retail Sales nor the New Zealand Balance of Trade likely to move the needle. This is a US Dollar story at the moment, not an Antipodean one.

Australian equities have been surprisingly resilient this week and despite China’s efforts on commodities, major Australian mining stocks are unmoved. That implies that the market regards the commodity sell-off as temporary and will be bullish for Australian equities going forward, as will a lower Australian Dollar.


The Bank of Japan policy announcement passed without incident with the BOJ unchanged on all fronts. They did, however, extend pandemic recovery packages which will be a boost for local equities. Japan equities otherwise have been firm this week, and if the Yen keeps falling as it has been, equity markets in Japan, laden with exporters, will remain in demand.

No Japan data to move the volatility needle is released next week.

Political risk is increasing in Japan. PM Suga has been dragged into the Toshiba Board governance scandal with accusations of direct interference. This is an evolving situation which won’t unseat him, but threatens to make the rumoured post-Olympics snap election a much more closely run affair.



Crude prices will have plenty of drivers next week, as energy traders focus on further unwinding of reflation trades on further hawkishness from Fed policymakers, possibly the first tropical system of the Atlantic hurricane season, a pivotal moment over Iran nuclear deal negotiations, and a slower reopening across Europe due to COVID variant concerns.

The commodity super cycle trade has come under pressure, mostly following China’s crackdown over the metals and soft grains, which has triggered some weakness for oil prices.  The crude demand outlook is still very robust for the next couple of quarters, so a major pullback in crude seems unlikely unless Iran is granted immediate sanction relief and able to rapidly increase production.


Gold has become a shadow of the bond market.  If the bond market selloff intensifies (Treasury yields rise), gold prices enter freefall.  If the commodity selloff remains the theme on Wall Street and if the dollar remains king, gold selling could remain strong.

Longer-term bullion bulls are still confident in the outlook for the precious metal, but are hesitant to jump back in at current levels.


Bitcoin remains stuck in a trading range, awaiting any developments over progress into transitioning into cleaner energy and most importantly if other countries follow El Salvador’s lead in making Bitcoin legal tender.  Bitcoin has not received any fresh endorsements on Wall Street and that probably won’t happen until clarity emerges over regulation and ESG concerns.

Bitcoin has been contained to the $30,000 to $41,000 trading range and that could last a little longer.  The collapse of other tokens has not impacted Bitcoin as some crypto traders have begun consolidating their positions to the best of breed.  The longer-term bullish thesis for Bitcoin holds for many traders, but for now a lengthy consolidation is welcomed.


Key Economic Events

Saturday, June 19

– Iranian presidential election results are expected.

Sunday, June 20

– Iran’s nuclear talks could resume in Vienna

– First round of French regional elections, with a second round, on June 27.  Some view these elections as a referendum on Macron’s reform agenda.

Monday, June 21

– St. Louis Fed President Bullard and Dallas Fed President Kaplan speak at the Fed Week event. New York Fed President Williams gives a virtual keynote to the Mid-Size Bank Coalition of America.

– ECB President Lagarde addresses the European Parliament.

Economic Data/Events:

Tuesday, June 22

– EU general affairs council meets to discuss the rule of law in Poland and “Values of the Union” in Hungary.

– Fed Chair Powell testifies at a House Subcommittee hearing on the Fed’s pandemic response

– San Francisco Fed President Daly speaks at a Peterson Institute virtual event. Cleveland Fed President Mester talks about financial stability at a Norges Bank virtual workshop.

UK Brexit minister Frost discusses the ongoing EU dispute over the Brexit trade deal and the imposition of controls across the Irish Sea.

Economic Data/Events:


Wednesday, June 23

– Fed Governor Bowman speaks at a conference on economic resilience.

– Atlanta Fed President Bostic speaks

– Boston Fed President Rosengren speaks to the National Association of Corporate Directors.

– ECB Vice President de Guindos speaks at Universidad Internacional Menendez Pelayo’s event.

Economic Data/Events:

Thursday, June 24

– The Fed releases the results of stress tests on the largest US banks.

– EU leaders meet in Brussels

– Fed Presidents Harker (Philadelphia) and Bostic (Atlanta) join a panel hosted by the Official Monetary and Financial Institutions Forum.

– St. Louis Fed President Bullard speaks at a virtual event hosted by the Clayton Chamber of Commerce.

– New York Fed President Williams discusses Staten Island’s economy.

– ECB Executive Board member Schnabel speaks at a University of Cyprus event on the central bank’s response to the pandemic.

– ECB Executive Board member Fabio Panetta speaks at an EBF event on the digital euro.

Economic Data/Events:

Friday, June 25

-Cleveland Fed President Mester speaks at the virtual Policy Summit 2021 on economic resilience

– Boston Fed President Rosengren talks about financial stability at Fed Week event.

Economic Data/Events:

Sovereign Rating Updates:

– Czech Republic (Fitch)

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya [7]

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya