Fundamental Outlook for US Dollar: Bearish

- Monday’s vote down of the bailout bill by the House triggered heavy USD, stock market losses
- Senate approval later in the week led the US dollar rebound, but the final pass in the House failed to spark excitement
- US non-farm payrolls plummeted in September for the ninth consecutive month

The US dollar ended the week on a rather strong note despite the release of disappointing non-farm payrolls, as the Treasury’s Troubled Asset Relief Program (TARP), better know as “the bailout bill,” was finally approved by both the House and Senate. Looking ahead to next week, there will be limited event risk on hand for the US dollar, leaving risk trends all the more likely to drive the markets. However, on Tuesday, the minutes from the Federal Open Market Committee’s September meeting will be released. It was somewhat surprising to see the markets completely brush off the disappointing non-farm payrolls numbers on Friday, as the risks for recession remain very high. However, bearish commentary by the FOMC members may enough to remind traders just how bad things are.

Thus far we’ve seen that the US dollar has held up well despite the fact that fed fund futures are fully pricing in a 50bp cut on October 29, and this is the result of signs of recession in other regions like the UK and Euro-zone. However, the FOMC meeting minutes suggest that the Committee may actually consider cutting rates this month, the US dollar could pull back sharply. On the other hand, if global stock markets rally on an improvement in investor confidence due to the passage of TARP, the sentiment could lead the greenback higher as well.

Terri Belkas is a Currency Strategist at FXCM.