July 2021 FX Outlook

Economic Calendar
- July 6: Reserve Bank of Australia meeting
- July 8: Poland central bank meeting
- July 9-10: G20 summit
- July 13: Reserve Bank of New Zealand meeting
- July 13: US June CPI
- July 14: Turkey and Chile central bank meetings
- July 14: China’s first estimate of Q2 GDP
- July 15: South Korea central bank meeting
- July 16: Bank of Japan meeting
- July 22: European Central Bank and South Africa’s central bank meetings
- July 23: Russia central bank meeting and opening ceremonies for the Olympics
- July 27: Hungary’s central bank meeting
- July 28: Federal Reserve meeting
- July 29: First estimate of Q2 US GDP
- July 30: Chile central bank meeting
- July 30: First estimate of eurozone’s Q2 GDP
The US dollar appreciated broadly in June, and the nearly 3% rise in the Dollar Index was the most in a month since late 2014. What appeared to have begun off as a technical correction after the dollar fell in April and May tuned into a powerful short-covering squeeze seemingly encouraged by a more hawkish than expected Federal Reserve. The number of Fed officials who see a hike next year being appropriate rose from four in March to seven in June. The median now expects a hike in 2023, while in March only seven did. The market turned even more aggressive and in the derivatives market has fully priced in one hike next year and a 60% chance of a second. We suspect sentiment has swung too hard. Judging from the futures market, however, speculative positioning is still heavily short the dollar, even if less so.
The yen fell to new lows for the year in late June but was still the best performing major currency, losing about 1.4% against the dollar. It is the fifth month this year that the dollar rose against the yen after falling in five of the six months of H2 20. Although the pandemic has kept the world’s third-largest economy in recession so far this year, a stronger second half is expected, the low full vaccination rate leaves large parts of the population susceptible to the new Delta mutation. The euro’s 3.1% decline surrendered nearly three-quarters of the gain registered in April and May and June on the month’s lows, having been unable to resurface above $1.20 since the FOMC meeting.
Marc Chandler
Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com