After strong economic data across the board out of the US yesterday, the United States Dollar is on a winning path across the G10 board this morning, posting gains against all major currencies.
Overview
The biggest upside surprise came in new home sales data yesterday morning – expected to come in at a decline, sales actually increased north of 12% last month. The resilience of the US economy stands in stark contrast to most other G10 economies, all of which are facing at least some contractionary indicators. It seems as though investors are switching back to cautious optimism about the US’s prospects for the second of the year, and the recession that has long been predicted may not, in fact, materialize.
The European Central Bank’s summit in Sintra continues today and will open the morning’s US trading session with a panel from Jerome Powell, Christine Lagarde, Andrew Bailey, and Kazuo Ueda at 9:30 AM. Questions remain as to whether Fed Chair Powell will maintain his hawkish stance on July’s meeting – it’s quite possible that he will hedge toward the dovish side, and pricing for a July rate hike may change. We expect trading to be quite volatile this morning for the Buck but still expect some further upside as the other three speakers are facing worse economic conditions for their respective nations.
US equities are also expected to open slightly lower this morning, driving further strength for USD. The Biden Administration ratcheted up trade tensions with China overnight, announcing increased restrictions on chip exports. On this news, tech stocks are leading the decline, and investors are seeking the relative safety of the greenback.
Though not out of the woods yet, the US economic outlook is a bit rosier than that of most other nations. All eyes point to Sintra’s panel at 9:30 and then look ahead to the release of US GDP and Eurozone CPI numbers tomorrow morning.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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AUD ⇓
In a sharp reversal from yesterday’s gains, AUD and NZD are both down well over a percent against USD this morning. Australia’s CPI numbers, released overnight, showed an unexpected drop from 6.1% year-over-year expectations all the way down to 5.6% year-over-year. While undoubtedly good news for the larger Australian economy, the odds of a rate hike from the Reserve Bank of Australia next Tuesday have decreased all the way down to 19%. Governor Lowe has shown his willingness to tolerate inflation above his target of 2% before, and with this downward trend, it’s unlikely he wants to put pressure on the economy with another hike without assessing this cycle’s full impact.
GBP ⇓
Pound Sterling, after quite a strong performance against the USD for most of the month, has sharply reversed this morning and dropped nearly a percent on the heels of comments from the Bank of England’s chief economist Huw Pill. Speaking at the ECB forum in Sintra, Pill acknowledged the BoE’s failure to forecast the scale of the UK’s inflation crisis was due to “unworkable” modeling assumptions. This comes after the BoE announced an external review of its forecasting process and has severely shaken confidence in the central bank’s ability to handle the UK’s continuing cost-of-living crisis.
