The United States Dollar, after a dismal performance through yesterday’s session, is trading mostly stronger across the G10 but holding on to most of yesterday’s losses at the US open this morning.
Overview
As month and quarter-end approach at the beginning of next week, there is a slight bid for the Buck as traders close out of tactical shorts and reduce market exposure. With little in the way of hard data today, flows appear to be driven by real-money demand.
The biggest news through yesterday’s session came from Fed Chair Jerome Powell in his semi-annual congressional testimony, during which he signaled there is at least some chance of an interest rate cut at the FOMC’s meeting next month. Of course, such a move is dependent on how US PCE figures, the Fed’s preferred inflation gauge, show inflation progressing when released on Friday morning. Powell also mentioned that the Fed is still somewhat concerned with the potential inflationary impacts of tariff policy from the Administration. The ’90-day pause’ of reciprocal tariffs that were introduced on April 2nd expires on July 9th, just two weeks from now, and ahead of the Fed’s next meeting at the end of the month. Powell’s testimony continues this morning to the Senate, but it’s unlikely that his message will deviate from what markets heard yesterday. Today is also the final day of the NATO summit, and international leaders are backing a plan to increase defense spending for their respective nations up to 5% of GDP, delineated as 3.5% in ‘core defense’ and an additional 1.5% in related investment like cybersecurity and infrastructure.
Though the data calendar remains fairly quiet today, there are two remaining US releases to wrap up the week that could inject further volatility toward month-end – markets receive the final reading of Q1 GDP tomorrow morning, which is expected to show once again that the US economy did contract in the first three months of this year. We also see PCE inflation readings Friday, which, should they prove to be benign, could in fact open the door to more easing from the Fed this year.
What to Watch This Week…
- US Final Q1 GDP, Thursday 8:30AM
- Banxico Interest Rate Decision, Thursday
- US PCE Deflator Index, Friday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
AUD ⇑
Even following a weak CPI print overnight that has increased the chances of a rate cut from the Reserve Bank of Australia next month, AUD is outperforming the rest of the G10 to trade flat against USD and is nearly 2% stronger against the Buck since its low point early Monday morning. AUD has once again proven to be an effective risk barometer for FX markets, and as risk sentiment today remains fairly positive, the Antipodean currencies are managing to stay ahead of a slight uptick in demand for Dollar this morning.
JPY ⇓
Japanese Yen is continuing its streak of volatile trading this week and is the worst performer in the G10 this morning, sliding six tenths of a percent against the Buck. The Bank of Japan’s Tamura spoke overnight and said the central bank may need to raise interest rates should inflation continue to move upwards towards their target, but as Tamura is a well-known hawk markets largely shrugged off the commentary and the Yen is at the mercy of risk sentiment, which is largely positive this morning. Reports also surfaced that the Trump Administration asked Japan to increase its defense spending to 3.5% of GDP, which Japan has since denied.
