Safe-haven appetite keeps US dollar strong

This week's Federal Reserve meeting minutes are expected to be the highlight of a holiday-shortened week, and investors are hoping to see some signs that there may be a slowdown in the pace of interest rate hikes. There will be a crucial test in front of U.S. retailers this weekend as the most lucrative shopping period of the year kicks off on Friday. As the latest world economic forecasts from the OECD are released on Tuesday, along with the latest global PMI data, they will provide us with an insight into the health of the world economy. It is also possible that China may step up economic support measures. There are signs that the king dollar may be on the verge of losing its crown soon.

The US dollar was strongly higher against major currencies on Monday, while China's yuan was down as sentiment in the world's second-largest economy was soured by the growing number of COVID cases and the tightening of restrictions in some cities across the country. The dollar index, a measure of how the greenback compares against six major currencies, increased by 0.412% to 107.330 on Monday, reaching its highest level since Nov. 11. The index advanced 0.5% last week, recording its biggest weekly gain in a month as investors flocked to safe-haven currency in search of safety.

Fed’s minutes

Traders are eagerly awaiting the Fed's publication of the minutes of its November meeting on Wednesday, hoping to see any signal that policymakers may be considering slowing down the tightening process after raising rates more rapidly this year than at any time since the 1980s.

Fed Chair Jerome Powell and other policymakers have hinted that the central bank may reduce its interest rate hikes next month. This is to avoid tightening more than necessary and potentially sending the economy into a recession. While at the same time, Powell has hinted that the Fed may end up needing to raise rates not only to the 4.6% policymakers believed were necessary by the end of next year, but to a higher level.

Additionally, the Richmond Fed manufacturing index, initial jobless claims, durable goods orders for October, and PMI data for November are all on the economic calendar for the week.

OECD economic report

In conjunction with preliminary readings of business activity in November from a number of countries, the OECD is expected to release its latest forecast on the global economy. This will provide a snapshot of the overall health of the global economy alongside the OECD's latest forecast.

The most recent forecasts by the OECD, which were released in September, already pointed to a deteriorating outlook for the U.S. economy, which is expected to fall into a recession next year due to the weak global economy.

PMI data from the Eurozone and the United Kingdom as well as the US are expected to add to the gloom on Wednesday. The PMI readings for most European countries are less than the threshold of 50 which separates expansion from contraction.

The British economy has already been hit by a prolonged recession. The growth of the Eurozone economy has proven to be more resilient than expected, and the labour market has remained relatively robust. The fact does not change, however, that recession risks remain a concern due to energy shortages and inflation rates that are still high.