The dollar was softer on Friday afternoon in London, as a looming interest rate decision from the US Federal Reserve next week put pressure on the currency - particularly as that decision is expected to be a pause in rate hikes.
The market is becoming accustomed to seeing unflattering Chinese economic indicators, and the latest inflation readings were no exception. CPI and PPI numbers missed the mark, which again brings into question whether a strong Chinese recovery will materialise before the year is out.
Yesterday's surprise rate hike by the Bank of Canada (BoC) triggered quite a clean reaction in FX markets. Of course, the Canadian dollar rallied on the view that the BoC had unfinished business when it came to tightening. But the broader reaction was for short-dated yields to rise around the world, for yield curves to invert further, and for the dollar to strengthen.
News that GDP contracted in Q1 after all means that the euro-zone has already fallen into a technical recession. We suspect that the economy will contract further over the rest of this year.
The dollar was softer on Wednesday afternoon as markets looked nervously to the US Federal Reserve's next interest rate decision on Wednesday next week.
Consumers in the eurozone expect inflation to be noticeably lower, according to a survey by the European Central Bank.
The dollar was largely weaker on Tuesday afternoon after a disappointing reading for the US service sector fuelled fears of a recession in the world's largest economy.
Both traded and realised volatility levels in EUR/USD are dipping back to pre-invasion levels in February 2022. Despite tight liquidity conditions, FX markets are taking their cue from the rates market. Here, measures like the MOVE index – a yield curve weighted index of 1-month US Treasury implied volatility –- have fallen to the lowest levels of the year, presumably on the view that the Federal Reserve will not be doing a lot with the policy rate over the coming months.
The main highlight of the day in the eurozone is the testimony by European Central Bank President Christine Lagarde before the Committee on Economic and Monetary Affairs of the European Parliament.
The outcome of the much-anticipated OPEC+ meeting has created a splash in the oil market, if not a wave.
The dollar was weaker on Thursday afternoon as expectations for the trajectory of US interest rates were reassessed following comments from a senior Federal Reserve official.
Inflation in the eurozone cooled faster than expected in May, according to an official estimate on Thursday, while the labour market continued to tighten in April.
EUR/USD has today sunk to its lowest levels since mid-March as demand for USDs coincides with a less positive story for the EUR. In our view, positioning can help explain the move lower, with the market keen to build long dollar positions at a time when investors are likely having second thoughts about the recent build-up of EUR longs. The currency pair is comfortably on course for hitting our H2 target of EUR/USD1.06.
Grim data out of China are not helping EUR/USD get out of its bearish trap, and the pair is back below 1.0700 after a very short-lived rebound. Domestically, inflation figures in the eurozone are very important to watch from an ECB perspective.
Net USD long positions crept higher having edged down to their lowest level since July 2021 the previous week. The dollar has been performing well in the spot market. Safe-haven demand linked with US debt ceiling concerns may have contributed, but the market is also starting to fear another Fed rate hike in June or July. We expect Fed rate cuts to be priced out for this year.
Rising US yields continue giving a decent support to the US dollar; the US dollar index is now pushing above the minor 23.6% retracement on September to April retreat.
The dollar regained its poise against most major currencies on Monday, with sentiment boosted by a strong step in avoiding a US debt default.
So, a debt deal is done, and now all that remains is for it to be articulated in a bill that can pass through Congress and be signed off by the President. This is by no means a fait accompli, but there should be sufficient support from both Republicans and Democrats to get it over the line before Janet Yellen’s revised X-date of next Monday.
The dollar was broadly weaker on Friday afternoon after fresh data from the Bureau of Economic Analysis revealed a surprise pick up in a key US inflation gauge.
Mounting hope of a US debt ceiling deal has improved the market mood overnight, propping up equities, commodities, and most currencies relative to the US dollar, with the notable exception of the Lira. If the talked-about 2-year deal is done, we can talk about something else until after the next Presidential election. The result will be relief, and some fiscal tightening.
The May FOMC meeting minutes suggest the increasingly uncertain economic outlook, along with concerns over a potential credit crunch and risk of a contentious debate over the debt ceiling, pushed the Fed to adopt a more measured approach to further potential rate hikes with “participants generally express[ing] uncertainty about how much more policy tightening may be appropriate.”
This morning’s CPI data show headline inflation falling to 8.7% in April from 10.1% in March as energy price hikes last year fell out of the annual comparison. However, the out-turn for CPI inflation is well ahead of market expectations for 8.2%.
The oil market managed to edge higher yesterday despite there still being little progress in US debt ceiling talks as well as some hawkish comments from Fed officials.
Yesterday was just another day with the same topics. The US debt ceiling talks continued; US President Joe Biden expressed optimism about reaching a deal. US Treasury Secretary Janet Yellen said that the Treasury will soon be running out of money and won’t be able to service its debt.
