US Dollar Eyes Fed Chair Powell Testimony & Second Wave Risk

US Dollar Outlook: Coronavirus Second Wave Risk, Fed Chair Powell Testimony to Congress, Structural Unemployment Could Bolster USD Price Action

  • US Dollar catches a relief bounce as traders turn skittish and market sentiment wanes
  • The DXY Index attempts to build a base after sinking 6% from its year-to-date high
  • USD price action eyes second wave risk and a scheduled testimony on FOMC monetary policy

The US Dollaris trading on its back foot as the DXY Index peels back from a rebound higher staged late last week. Yet, as the US Dollar rises from the dead, alongside the resurgence of volatility, USD price action could build upon its recent reversal attempt.

This is in consideration of lingering demand for safe-haven currencies, such as the US Dollar, which could intensify in the days ahead if catalyzed by threats from a second wave of coronavirus cases or a scheduled congressional testimony from Federal Reserve Chair Jerome Powell. Fed Chair Powell is scheduled to tee off his testimony to congress on Tuesday, June 16 at 14:00 GMT.

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Fed Chair Powell Congressional Testimony: FOMC Balance Sheet & Unemploymen in Focus

US Dollar Price Chart Federal Reserve Balance Sheet Growth Powell Testimony to Congress

The potential US Dollar reversal attempt looks like it corresponded with the latest FOMC announcement. The central bank meeting revealed discouraging economic forecasts, like the expected need to keep interest rates lower for longer, which was underscored by pessimistic commentary from Fed Chair Powell on lasting structural damage done to the US jobs market amid 20-plus million Americans suddenly unemployed.

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In response to economic turmoil weathered earlier this year, unprecedented Fed balance sheet growth helped improved investor confidence by providing liquidity to cash-strapped businesses. How much more monetary stimulus the Fed is able and willing to provide in terms of balance sheet growth could get placed under scrutiny by politicians, which stands to weigh on USD price action in turn. Fed Chair Powell might also spook investors and spur safe-haven demand when discussing US unemployment.

New Coronavirus Cases Trending Sideways as Lockdown Measures Scale Back

US Dollar Price Chart USD DXY Index Coronavirus Cases Second Wave Risk

Another primary driver that has serious potential to weigh on the direction of the US Dollar includes the trend of new confirmed coronavirus cases. The 7-day moving average of new coronavirus cases has drifted sideways for the last month. That said, there is potential that the number of new COVID-19 cases starts to trend higher as lockdown measures are scaled back by governments and businesses.

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This risk has been exacerbated by Americans gathering in crowds by the thousands to protest the death of George Floyd. The threat of a second wave thus remains considerable and could present a bullish tailwind for the US Dollar.

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— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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