The dollar rebounded slightly from its lowest level in more than a year to above 94 on the day after President Trent's son-in-law Jared Kusher said in a statement before the closed-door hearing that he was not colluding with Russia and that US economic data released on Monday were good. The Fed is about to hold a two-day monetary policy meeting, and investors are expected to keep a close eye on policy makers' assessment of recent weak retail sales and inflation, and whether to reveal the timing of the contraction. On the other hand, bearish sentiment on the dollar has risen to a high in 2013, but analysts believe there are signs that the dollar's recent decline may be coming to an end.

Kushner, Trump's son-in-law and senior adviser, told the Senate Intelligence Committee on Monday that he had met with Russian officials four times last year, but said he had not conspired with Russia to influence last year's US presidential election.

Continued investigations by congressional select committees and special prosecutors of the U.S. Department of Justice, as well as weak U.S. economic data and falling inflation expectations, weighed on the dollar for most of this month. Market participants said the investigation was one of the reasons for Trump's slow progress in implementing economic stimulus measures such as tax cuts and infrastructure spending.

U.S. economic data released on Monday showed that Markit manufacturing and services data were better than expected, with the dollar rebounding from a 13-month low hit in early trading against a basket of six major currencies, temporarily trading above the 94 mark. Meanwhile, spot gold hit an one-month high of $1258.95 an ounce at the start of trading in New York, but then gave up gains.

On the other hand, US President Donald Trump delivered a speech at the White House on Monday local time, urging the Senate to repeal and replace Obamacare as soon as possible. Senate Majority Leader Mitch McConnell said outside the White House last week that he would vote this week, but it was not clear whether he would just vote to repeal Obamacare or replace it with a new bill.

Repealing and replacing Obamacare is not only an important promise made by Trump during last year's election, but also an important legislative option that Republicans in Congress have been trying to promote for seven years. However, this first legislative priority after Trump took office has been repeatedly frustrated and is also seen as a major manifestation of the failure of Trump and the Republican Party.

Sean Yokota, head of Asia strategy at SEB, a Swedish bank, said: "rising risks about US politics and Trump have led to dollar weakness across the board. But the dollar's weakness may not last that long, as the Fed meets this week to get out of short positions ahead of the risk of that event. "

This week investors will focus on US economic data, including consumer confidence and second-quarter GDP data, as well as the Fed's statement after its policy meeting and after its meeting on Wednesday.

Andrew Bresler, deputy director of sales and trading in the Asia-Pacific region of Saxo Capital Markets Ltd, said that the possibility of Trump fulfilling his campaign promises in the foreseeable future is almost zero, so the Trump market has ended this year, and it may be the same next year.

Bresler also pointed out that only an improvement in US hard data is likely to change the fate of the dollar in the coming months. This will give the Fed the confidence to continue along its interest rate path.

The Fed's July meeting kicked off with two highlights: inflation and shrinking schedule.

The Fed will hold a two-day monetary policy meeting starting on Tuesday and will issue a policy statement at 02:00 Beijing time on Thursday. In the absence of a press conference after the meeting, the market will use statements to gain insight into how weak retail sales and inflation affect their assessment of the economy, as well as when to shrink the balance sheet.

The Fed will announce a timetable for its balance sheet reduction program in September and then raise interest rates again in December, according to a Bloomberg survey of 41 economists.

Economists are more worried about the recent slowdown in inflation than it was in a similar survey in June, according to the survey conducted on July 18-20. However, 2/3 of respondents said Fed officials would not change the wording to highlight this growing concern in the next decision statement.

Federal Reserve Chairman Janet Yellen told lawmakers on July 13 that policy makers were watching inflation closely, but gave no hint that they would revise the prospect of a further gradual rate hike. The Fed decided to raise interest rates in June and expects to raise rates again by the end of the year.

The subsequent consumer price index showed that the price rise was weak for another month, with the core consumer price index, which excludes food and energy, falling to 1.7 per cent year-on-year in June from 2.3 per cent in January.

Although the US unemployment rate has fallen steadily and is close to a 16-year low, tepid inflation data have curbed the Fed's outlook. Policymakers have expected inflation to return to the 2 per cent target, though it has not been met for most of the past five years.

Daniel Tarullo, a former governor of the Federal Reserve (FED), said Monday that weak inflation could affect the Fed's discussion of whether to raise interest rates again. But he also stressed that the risk of prices getting out of control is minimal.

Bloomberg economist Carl Riccadonna says policy makers will want to improve their assessment of the recent economic situation, especially when it comes to inflation moving further away from the Fed's 2% target. Second, the main parameters of the reduction strategy were set at the FOMC meeting in June, and the only unknown factor is the actual implementation date. Recent remarks by Fed officials show that they generally support starting to shrink the balance sheet before raising interest rates again.

Goldman Sachs Group does not expect any policy change at the FOMC meeting, nor will there be much change in the wording of the policy statement, which may strengthen the description of full employment, but at the same time acknowledge a further decline in inflation, and the statement may acknowledge that the shrinking schedule is close at hand; the Fed is still expected to announce a 50 per cent rate increase in December and a 60 per cent chance of raising interest rates at least three times this year.

JPMorgan Chase & Co (JPMorgan) believes this week's policy statement could suggest that balance sheet normalisation will begin "relatively soon" or at the September meeting, as policymakers have not prepared the market enough for next week's launch.

Separately, Ellen Zentner, an economist at Morgan Stanley, pointed out that the Fed's policy statement next week could suggest that policy makers are ready to start normalising the central bank's balance sheet "relatively soon", consolidating expectations for a formal announcement in September.

Foreign exchange analysts at Barclays Capital said it was unlikely to provide much support for the dollar for the Fed meeting, but the prospect of a gradual rise in interest rates still opened up some upside for the dollar.

As for gold, Bob Haberkorn, a senior commodity broker at RJO Futures, said gold would consolidate and the rally would be suspended until the FOMC meeting of the Fed's Open Market Committee next Tuesday-Wednesday. Although no one expects to raise interest rates, market participants will pay close attention to the wording of future clues to monetary policy in their post-meeting statements, he said. Then the next step for gold "depends on what we hear from them."

"while gold has benefited from the weakness of the dollar against the euro and Treasury yields, the Fed's interest rate hike is expected to limit gold gains and will remain in the $1200-$1250 range in the future," said Georgette Boele, an analyst at ABN AMRO.

Is it imminent for dollar bearish sentiment to rebound at its highest level since 2013?

Speculators' positions in the dollar turned net short last week for the first time in more than a year, according to the Commodity Futures Trading Commission (CFTC), implying an increase in investors betting on a fall rather than a rise in the dollar. Bearish sentiment against the dollar is at its highest level since 2013.

The dollar fell below several important technical levels last week and investors are now repricing the dollar in the current environment, especially the dollar / euro deal, analysts said. The euro has the largest weight in the dollar index, more than 50%.

Tempus Inc marketing director John Doyle said. "when the dollar and the euro start to trade in currently relatively unfamiliar regions, you start to think about the possibility of a sell-off and some profit-taking. Although the second-tier economic data released on Monday are not very important, they are slightly stronger than expected, which also provides an opportunity to sell euros, buy dollars and take some profits. "

However, a closer look at dollar traders shows that the slump is coming to an end.

Citi's foreign exchange quantitative trading division wrote that as the real currency became a strong net seller of the dollar, hedge funds became aggressive buyers for the first time in months, with "a sharp increase in belief over the past few weeks". The disagreement intensified sharply last week after the euro / dollar reacted to the ECB meeting, as can be seen from investors' monthly cumulative flows.

Among the G10 currencies, the dollar is now the second-largest currency shorted by real currency investors, with one-week and four-cycle net flows significantly negative. So far in July, real currency investors have been net sellers for 80% of the trading day, continuing to be bearish on the long-term trend of the dollar.

On the other hand, hedge funds were net buyers of dollars last week, mainly due to heavy purchases by hedge funds immediately after the dollar depreciated immediately after last week's ECB meeting. On the day of the meeting, there was a large flow of euro / dollar funds, and hedge funds became powerful buyers of dollars and sellers of euros. From the four-week cumulative capital flows, it can be seen that leveraged investors are likely to be long dollars and short euros, in sharp contrast to the large amount of actual funds shorting.

According to Citigroup, "this divergence between hedging and real currency flows opens up the possibility that real money will follow in its footsteps, and we may see a rise in the dollar in the coming weeks."

Bloomberg commentator Marc Cudmore also expects a rebound in the dollar is imminent. He points out that every trader is considering when the dollar will rebound because it will affect the price of almost all other financial funds. I think it is building a short-term bottom this week.

(FX168 Financial News)