On the heels of CPI data showing price pressures easing in the US, the United States Dollar took heavy losses through yesterday’s trading session and is continuing that trend this morning.
Overview
Yesterday’s release showed a headline inflation rate of 2.969% for June, solidly below expectations and breaking through the key 3% psychological barrier. While markets still believe the Federal Reserve will raise interest rates by 25 basis points at its July 26 meeting, the second hike that Jerome Powell has promised at either the September or October meeting no longer looks likely. Much will depend on the press release issued with the Fed’s July decision when charting the path for USD through the month of August
This morning’s PPI index also posted below expectations, a further sign of cooling in the US. The combination of these readings with a decrease in initial and continuing jobless claims today is undoubtedly good news for the Fed, who may yet fulfill their mandate to tamp down inflation without causing too much damage to the greater US economy. When compared with their counterparts in Europe and the UK in particular, the Fed’s tightening cycle has a much more defined endpoint. This is a driving weakness for the Buck – as we have mentioned in the past, divergent interest rates will be a huge contributing factor to FX prices through the remainder of the year.
As we approach the media blackout period preceding the Fed’s meeting, and with no major data readings left before it, USD is likely to tread water in similar ranges to this morning until July 26 against most majors.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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CHF⇓
Swiss Franc rocketed up just shy of three-quarters of a percent overnight and into this morning on the heels of US inflation data, rising to its strongest level against USD in eight years. The global economic picture remains uncertain, and investors are still seeking out the relative safety of traditional haven currencies like CHF and JPY while the Chinese economic picture is still unclear.
CAD ⇑
After the Bank of Canada raised its key interest rate by 25 basis points yesterday to match that of the US, the Loonie gained against the Buck to the tune of half a percent through yesterday and this morning. The Canadian inflation picture is fairly murky, posting conflicting readings for the months of May and June and prompting hawkish language from the central bank as it attempts to lower inflation.
