Will the US Dollar Still Reign after the FOMC Meeting?

The key event next week will be the FOMC meeting. In addition, the Bank of Japan, the Swiss National Bank, and the Bank of England will also have their respective policy meetings. As for economic data, the most important release will be the preliminary September PMIs.

Here is what you need to know for next week: 

The US Dollar Index (DXY) posted its ninth consecutive weekly gain, closing above 105.00. This continued streak is supported by the strong performance of the US economy. Economic data released this week provided evidence of a rebound in inflation, although core rates slowed.

The Federal Reserve will have its monetary policy meeting, and it is expected to keep interest rates unchanged on Wednesday. Fed Chair Powell will later hold a press conference. No major changes are anticipated from the Fed. A pause, with the recognition that they might raise interest rates further if inflation halts its slowdown, is a possibility. The current state of the economy indicates that it is capable of accommodating to another rate hike. A dovish tilt has the potential to trigger a sharp correction in the US dollar and a rally in commodity prices.

The Bank of England is set to announce its decision on Thursday, following the release of UK consumer inflation data on Wednesday. Market expectations point to a 25 basis point rate hike. However, earlier expectations of a larger hike have softened due to recent UK data and the economic outlook, causing GBP/USD to tumble below 1.2400 to its lowest level since early June.

The Euro also declined after the European Central Bank (ECB) signaled that its recent rate hike may be its last, leading financial markets to interpret the message as dovish. The key report next week will be the European preliminary September PMIs.

EUR/USD has experienced its ninth consecutive weekly decline, the longest losing streak since its creation. It reached a low of 1.0631 during the week, slightly above the 200-week Simple Moving Average, and remains under pressure.

The Canadian Dollar outperformed, supported by the rally in crude oil prices, resulting in its best week against the US dollar since March. USD/CAD lost over a hundred pips and is testing the 1.3500 support area. Canada will release the August Consumer Price Index next week.

The Bank of Japan is expected to maintain its current policy in its upcoming decision. USD/JPY ended the week near the 148.00 area, which acted as resistance last week and remains a level to break.

Antipodean currencies finished the week with modest gains against the US dollar, with AUD/USD and NZD/USD holding in recent ranges. The stronger US dollar was partially offset by improved risk sentiment and signs of stabilization from China.