Correction of the US dollar

Last week the US Dollar Index pulled back sharply following the Fed meeting on Wednesday. Indeed, it had started declining already on Monday, when weak Industrial production for March was released. In our opinion, it indicates that after the US dollar index rose continuously from 79 to more than 100 in the last ten months most market participants were ready for a pullback and even anticipated it. On Wednesday Fed chair Janet Yellen stated that the Reserve System was not in a hurry with the rate hike while inflation is low and American economy creates enough jobs. In our opinion, this is absolutely logical but we would like to mention another important factor – as long as foreign investors are ready to buy US Treasury bonds with yields as low as almost 0 percent, which bolsters the demand for the American currency and underpins it.

Accordingly, core inflation and Non-Farm Payrolls will be the main indicators affecting the US dollar. Inflation for February will be published this week on Tuesday. It is expected to decline, which may postpone the rate hike and bring additional pressure on the dollar. Besides, other important American statistics will be issued this week which will determine the Forex market dynamics. Durable Goods Orders are expected on Wednesday: the forecast is negative. The final reading of the fourth quarter GDP and University of Michigan Consumer Confidence Index will be released on Friday. The tentative outlook is positive. Later on, Fed Chair Janet Yellen will speak on While the dollar has been plummeting last week, the euro has marked the sharpest weekly increase since late 2011 despite there were no apparent signs of macroeconomic recovery in eurozone.

No particularly important economic data are expected in Europe this week. We think that negotiations between Angela Merkel and Alexis Tsipras, that started on Monday, may affect the shared currency. Euro will also be driven by events involving the Greek debt crisis.