U.S. Dollar Faces Volatile Week as Fed Policy Makers Line Up to Speak

After months of diminishing volatility that left the dollar almost immune to Federal Reserve talk and data surprises, the world’s deepest and most liquid market is back to scrutinizing both -- and just in time for one of the busiest weeks of the year.

St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan and New York Fed President John Williams will speak on Monday before Chair Jerome Powell testifies to Congress on Tuesday. Friday will feature a reading on the central bank’s favored inflation gauge, while in between, other regional Fed chiefs discuss the economy and monetary policy.

How the greenback responds is important because of the corresponding impact on other asset classes from commodities to stocks and credit. The Bloomberg Dollar Spot Index rounded off its biggest five-day gain in more than a year last week when the Fed indicated it could raise interest rates twice by the end of 2023.

U.S. Dollar Faces Volatile Week as Fed Policy Makers Line Up to Speak

The JPMorgan Global FX Volatility Index has climbed sharply since the Fed released its projections last week. In an sign of what may be to come this week, two-year Treasury yields and the dollar jumped on Friday after Bullard said it may be appropriate for the central bank to start raising interest rates next year.

Policy makers will have a close eye on how hawkishly markets are taking their comments and forecasts, according to Vishnu Varathan, the Singapore-based head of economics and strategy at Mizuho Bank Ltd. “If markets fall into old habits of over-indulgence, then Fed attempts to rein in run-away hawks down the road should not surprise anyone,” he wrote in a research note.

Read: Powell Heads to Capitol Hill as Market Churns On Dot Shock

Key Gauges

The Bloomberg Dollar Spot slipped 0.2% on Monday after jumping 2% last week, the most since April 2020.

Data due Friday is projected to show year-on-year growth in core personal consumption expenditures probably quickened to 3.4% last month, from 3.1% in April, which was already the highest since 1992.

“Market participants will be interested in whether Powell and Williams indicate concerns about an inflation overshoot,” according to a research note from Commonwealth Bank of Australia. “Signs that the FOMC is growing less certain about the inflation outlook is important for the policy outlook, and can support the U.S. dollar.”

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