The US dollar could remain under pressure as traders increasingly view the possibility of a softer monetary policy in the near future as US data continues to show signs of weakness.
The effects of the banking crisis could also push monetary policy in the same direction as credit conditions could continue to worsen. Such a trend could affect small and medium-sized businesses in the US and jobs as well as inflation eventually.
Denys Peleshok, Head of Asia at CPT Markets said, “The focus this week could remain on the US GDP figures that will be published toward the end of the week. Economic activity is expected to have slowed down significantly, which could further cement the current view for a softer monetary policy. The release of these figures could create strong volatility for the dollar.
“The publication of initial jobless claims data in the US could also have a strong impact on expectations with the health of the job market having significant importance for the Fed due to its potential impact on inflation.
“In this regard, the US monetary policy direction contrasts with that of other major economic blocs where the policy’s direction is less certain. While the US could potentially move to a pause in interest rate hikes and a reduction later this year, other central banks could maintain a more aggressive approach for longer.
“This trend could put the US dollar in a weaker position against other major currencies like the euro or even the Japanese yen where the Bank of Japan could dilute its accommodating policy at some point.
“However, traders could remain cautious before the Federal Reserve interest rate decision in the middle of next week when markets’ expectations could be confirmed. At the same time, the central bank’s president’s speech could give more clarity regarding the institution’s perspective and view on the US economy and interest rates.”