After two sessions in a row with minimal FX movements, the United States Dollar has finally chosen a direction, albeit a negative one.
Overview
Following the release of US CPI the Buck is trading weaker against all major currencies, and emerging-market FX is outperforming. Consumer prices increased just 0.081% last month, below both last month’s figure and market projections of 0.2%. On an annualized basis, prices increased 2.4%, while the core reading excluding food and energy showed a price increase of 2.8%, also below expectations. As one might expect, after catching a small bid in the overnight session the Dollar abruptly reversed course on this news.
The administration will no doubt be a big fan of this print, since many economists and strategists have shown great concern over the last few months on the inflationary impact of tariffs, but readings have continued to be quite benign. Important to note, of course, is that the majority of “reciprocal tariffs” implemented on April 2nd are currently paused, but a court did rule last night that these policies are allowed to stay in place. As it stands, though, there may be less political pressure for the Administration to walk back these levies should inflation readings continue to stay calm. Odds of interest rate cuts by the Federal Reserve through the back half of this year have gone up as well, and traders are now just shy of pricing in 50 basis points of easing before the central bank’s decision next Wednesday.
Though CPI figures are the primary driver of the Dollar this morning, the US and China did appear to reach calmer footing in their negotiations in London over the last two days according to Secretary of Commerce Howard Lutnick. This “handshake agreement” to then “implement a framework” to reach the consensus the two nations already reached in Geneva last month had little impact on markets, though, but President Trump praised the progress this morning and said that he and President Xi of China would work together to open up trade between the world’s two largest economies.
What to Watch This Week…
- US PPI, Thursday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
The single currency is the biggest winner in the G10 this morning on the heels of a tame US CPI print, as European Central Bank President Christine Lagarde continues to call for a “global Euro moment.” EUR has finally broken out of the ranges it has been stuck in for the last several sessions, posting a gain of four-tenths of a percent at the start of the US session. International use of the Euro, however, remained mostly flat through 2024, and its usage in foreign exchange reserves held steady at 20%. There has been steady corporate demand amidst uncertainty surrounding the US economic picture, but it remains to be seen if EUR can make a break toward its 2021 highs.
MXN ⇑
Mexican Peso, along with most emerging-market currencies and assets, is making a break stronger against the Buck this morning posting a gain of roughly a quarter of a percent and pushing through a key resistance threshold. After Mexico’s inflation data for May showed a surprise increase, odds of quick easing from Banxico through this year decreased, while odds of rate cuts from the Federal Reserve have increased following this morning’s benign CPI print. US-China trade optimism is also helping to boost MXN as the global risk climate improves.
