After this morning’s 8:30 Eastern release of Consumer Price Index inflation data, the United States Dollar finds itself heavily on the back foot this morning.
Overview
Though core inflation remained elevated at 5.3% annually and 0.4% monthly, the broad inflation measure showed signs of slowing at 4% annually and just 0.1% in the month of May.
This release gives the Fed exactly what it was looking for ahead of tomorrow’s FOMC interest rate decision and Jerome Powell’s press conference at 2 PM and 2:30, respectively. Powell specifically has advocated for a “skip” at this week’s meeting to assess the full impact of 10 consecutive hikes, and after this morning’s inflation numbers, this “hawkish pause” is all but a done deal. Markets are still tentatively leaning toward another hike in July, currently priced at 60% odds. The Fed’s data-driven approach may prove yet to be quite prudent. It is important to note, however, that most central banks around the world have either hiked rates this month or are quite likely to hike in the next two weeks as this meeting cycle concludes, prompting dollar weakness as global interest rates begin to tick higher than that of the United States.
Yesterday’s low-volatility market is long gone, with most majors gaining nearly half a percent against the Buck at the time of writing. We expect continued Dollar weakness through the day and more losses into tomorrow as the Fed prepares to make an announcement. Jerome Powell’s press conference will – as usual – prove to be pivotal as he strikes the tone for July’s cycle.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
Monex USA introduces OPTIONS
With currency exchange rates in a constant state of flux, companies transacting cross-border face the risk of losing substantial sums of money if they fail to hedge their exposure to these shifts. Monex USA now offers a wide range of FX options that could help your business better manage risk. Learn More
GBP ⇑
Pound Sterling is the big winner on the G10 board this morning, gaining back all of yesterday morning’s losses and then some on the back of hawkish commentary from Bank of England policymakers. Both Catherine Mann and Jonathan Haskell spoke yesterday and prompted traders to price in four more successive interest rate hikes from the BoE. Additionally, this morning’s employment data showed a surprising resilience in the UK labor market, assuaging fears that the central bank’s ongoing fight against inflation is coming at the expense of the broader economic picture.
MXN ⇑
The Mexican Peso extended its unprecedented annual gains this morning on the heels of US inflation data, gaining another 0.2% against USD and marking a 13% gain since the beginning of this year. Banxico’s ultra-high interest rates continue to be a boon for investors in the currency as so-called “near-shoring” continues to be a hot topic, brought on by China’s sputtering economic recovery from its zero-Covid lockdowns. MXN is the second-best performer globally this year, behind only the Colombian peso.
