After starting the morning yesterday with a fairly lackluster turn to begin the week, the United States Dollar reversed course through the back half of Tuesday’s session and regained some strength, looking to continue that trend this morning.
Overview
Consumer confidence in the US surprised to the upside at 10AM yesterday morning, driven mostly by consistently low unemployment – unemployment rates have remained below 4% for the last 26 months. At the same time, Minneapolis Federal Reserve President Neel Kashkari both fueled market expectations that interest rates will remain higher for longer and mentioned that a further interest rate hike, however unprecedented that may be, is not necessarily off the table should data warrant it. Though Kashkari himself is known to be hawkish, his statement that he does not think “anybody” has completely rate increases off the table provided markets with some fuel for a Dollar rally through yesterday afternoon’s session. US Treasuries also slipped after a weak debt auction; the 10-year US yield reached a 3-week high.
Equity futures in the United States are poised to open lower this morning as fear of a hawkish shift from the Fed at large continues to spook markets. Global equities as a whole trended in the red through the Asian and European sessions. European bonds followed their US counterparts as well, after German inflation data came in quite mixed – some regional releases were well below expectations, but the preliminary harmonized reading for May edged back up again and highlighted the continuing challenge for the European Central Bank of managing inflation versus stimulating economic growth. Though the ECB is still the Group of 7 central bank most likely to cut interest rates first, expectations for easing globally have downshifted substantially this year as inflation worldwide continues to stay above target. Oil prices also extended recent gains after another attack in the Red Sea added more proverbial fuel to already-hot regional tensions.
Still to come this week is the second reading of Q1 GDP from the US out tomorrow morning, expected to show the domestic economy grew 3.7% from the first three months of last year. This is followed Friday by the Fed’s preferred inflation gauge, the PCE Deflator.
What to Watch Today…
- US Q1 GDP 2nd Reading, Thursday 8:30 AM
- Eurozone CPI May, Friday
- Core PCE Price Index, Friday 8:30 AM
- Monex USA Online is always open.
EUR ⇓
The single currency, after initially running up against USD during yesterday’s session, turned to losses after US consumers proved more resilient than markets initially believed and is trending slightly weaker again this morning. German CPI, however, is keeping EUR losses fairly muted as a surprise beat to the upside on the annualized figure does call into question just how many times the European Central Bank may cut interest rates this year. CPI for the Eurozone as a whole is due out Friday morning, along with GDP releases from several nations including France.
USD ⇑
China’s onshore Yuan dropped further this morning to its weakest level since November as global speculation abounds that policymakers have adopted a more laissez-faire approach to the currency and are slowly letting it depreciate against the Dollar. The People’s Bank of China has been slowly downgrading its daily reference rate for the last few weeks, and this morning’s price is the weakest in just over four months as Chinese officials struggle to promote economic growth in the nation without triggering panic or outflows of capital. Japanese Yen and Thai Baht are also facing difficulties of depreciation pressures in the region as persistent Dollar strength keeps many currencies on the weaker side.
