- The U.S. dollar remained firm as markets awaited Fed Chair Kevin Warsh’s speech at the ECB forum.
- Markets expect Kevin Warsh to reinforce a hawkish Fed stance and support higher U.S. interest rates.
- ING expects further U.S. dollar gains if Kevin Warsh reiterates concerns over persistent inflation.
The U.S. dollar remained firm on July 1 as investors awaited remarks from Federal Reserve Chair Kevin Warsh at the ECB’s Sintra conference. Analysts expect Warsh to focus on inflation and price stability, reinforcing the dollar’s recent strength.
Markets Expect Warsh to Stay Hawkish
According to ING, Warsh is unlikely to soften his stance after last month’s Federal Open Market Committee (FOMC) meeting. Markets viewed the Fed’s shorter policy statement and stronger focus on restoring price stability as a hawkish shift.
Since then, U.S. economic data has remained resilient. Core PCE inflation stayed at 3.4% year over year. Employment has remained strong, consumer confidence has improved, and U.S. stocks continue to trade near recent highs despite periods of volatility.
Analysts say these conditions support expectations for further policy tightening rather than a shift toward rate cuts.
Dollar May Extend Gains
Markets currently price in about 45 basis points of Fed tightening by the second quarter of next year, including roughly 22 basis points by September. Some investors have also begun to speculate that the Fed could raise rates as early as July.
Before Warsh speaks, investors will watch the July ADP employment report. A reading above 120,000 jobs could provide another boost for the dollar. The U.S. ISM manufacturing report is also expected to show the sector remains in expansion.
ING expects the U.S. Dollar Index (DXY), which has held support around 101.00, to climb toward the 101.70-101.80 range if Warsh reinforces expectations for higher interest rates.
ECB Likely to Keep Hawkish Message
Analysts also expect the European Central Bank to maintain a hawkish tone at the Sintra forum. That is despite growing concerns that another rate increase later this year may not be necessary.
The ECB is expected to argue that its previous rate hike was more than a precautionary move. Officials are also likely to continue highlighting inflation risks to prevent second-round price pressures.
Eurozone inflation data due later Wednesday is forecast to show headline and core inflation easing slightly. ING said EUR/USD could revisit 1.1325 if Warsh’s remarks strengthen the dollar.
Canadian Dollar Faces More Headwinds
Beyond monetary policy, analysts also see risks for the Canadian dollar from the upcoming review of the United States-Mexico-Canada Agreement (USMCA).
Although the review is expected to be delayed, negotiations over rules of origin and other provisions could weigh on both the Canadian and Mexican economies. A dovish Bank of Canada and broad U.S. dollar strength could add further pressure.
ING expects USD/CAD to remain above 1.42. The pair could climb toward 1.45 if trade negotiations worsen.
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