Dollar index futures are breaking a historical record - 9 weeks of increases in a row

The US dollar index contract rose for the 9th week in a row, which is a record for this financial instrument. However, the record for the dollar index itself is 12 weeks of increases in a row, so there is still room to possibly break another record. Nevertheless, the recent increases in the dollar seem to correlate quite well with crude oil prices, which may indicate a scenario such as: the price of oil increases, there is a chance for higher CPI inflation, this may raise expectations regarding the Fed's actions, and this may help the dollar. Additionally, it is worth remembering that for now, only the US economy out of the world's major economies remains afloat, showing solid GDP growth amid recession in Europe and an attempt at economic recovery in China.

Base effect to the detriment

From the June bottom, the price of a barrel WTI oil increased by as much as 36%, which means that the year-on-year increase is already 7%, so the base effect may start to work against disinflation, especially since a year ago the following months were characterized by even lower prices of the raw material. On the other hand the USD index has increased by almost 6% since the July low to the highest level since March 2023. According to the Atlanta Fed model, i.e. GDPNow, US GDP growth in the third quarter is expected to be 4,9% on an annualized basis, which currently means a decline in the forecast from 5,9% at the end of August.

Meanwhile, the interest rate market seems to indicate that The Fed has already finished raising interest rates. As of Wednesday's decision, there is a 99% probability that the Fed will not change the rates, and for November the market assumes no changes in rates with a 73% probability. Nevertheless, it is worth remembering that currently the meeting will be a meeting together with the publication of macroeconomic projections. These, in turn, may indicate a desire to keep interest rates at higher levels for a longer period of time. In turn, the market assumes that the first cut will take place in June 2024 and that it will begin a series of rate cuts in the US.

What's next in US monetary policy?

US interest rate decision will be published at 20 p.m. on Wednesday, September 00, along with the screenings, and at 20:30 p.m. Jerome Powell will be able to present further assumptions for monetary policy in the United States to markets and investors.

On Monday morning, the dollar was PLN 4,3549 and the euro exchange rate was PLN 4,6419. Main EUR/USD currency pair was trading at $1,0659, trying to rebound slightly from last week's decline with the ECB decision.