This morning, the United States dollar is consolidating yesterday’s gains and continuing to move in positive territory as the Federal Reserve begins its two-day meeting today at 10 AM.
Overview
Ranges remain fairly tight today, and the Bloomberg Dollar Spot Index is up a further 0.2%. Markets are bracing for impact, and trading is choppy ahead of two key risk events tomorrow, keeping gains more muted today than the moves seen through the second half of last week. One-month Dollar options risk reversals are set for their strongest close in more than a year as political turmoil around the world keeps investors positive on USD.
While the Federal Reserve’s policy decision and Fed Chair Jerome Powell’s subsequent press conference obviously looms large over the data calendar for this week, tomorrow morning’s CPI release is also weighing on the minds of traders. Core PCE, the Fed’s preferred measure of inflation, has shown downward progress in recent weeks and months; by contrast, progress on CPI readings has stalled out, and the annualized figure from last month was still 3.4%. Core CPI for the month of April still came in at 3.6% as well, showcasing the mixed nature of US economic data through the first half of this year. Tomorrow’s release is quite unlikely to figure into the Fed’s actual policy decision in the afternoon, but could very well sway the central bank’s forward guidance and will, regardless of a hot or cold release, undoubtedly be a topic of conversation with Jerome Powell later tomorrow afternoon. The Fed is also set to release an updated dot plot, and markets expect the median forecast of voting members will downshift from three interest rate cuts this year to two. Market expectations are currently split on expectations of two 25 basis point cuts this year versus just one, so tomorrow promises to be quite the volatile day for USD.
What to Watch Today…
- UK GDP, Wednesday
- US CPI, Wednesday 8:30 AM
- FOMC Meeting and Press Conference, Wednesday, 2 PM
- Bank of England Meeting and Press Conference, Thursday
- S&P Global Composite Flash PMI, Friday
- Monex USA Online is always open.
EUR ⇓
The single currency’s slide against USD continues this morning, down a further 0.3% since yesterday’s close. French bond prices remain under pressure, and the spread over German bunds for a tenor of 10 years rose to its highest since October after an unverified report that French President Emmanual Macron was considering resignation further spooked markets. Macron, for his part, immediately pushed back against such speculation, but his decision to call a snap election is keeping the European continent on edge as the possibility of a split French government looms large.
AUD ⇓
The Australian Dollar slipped a touch against the USD in overnight trading, down 0.2% to start the morning. Iron ore prices fell to their lowest levels in close to two months as global jitters persist concerning China’s efforts to contain and recover from its long property sector crisis, fueling demand fears. Additionally, Australia’s business confidence readings slipped into negative territory, and conditions fell to below-average levels, fueling speculation that high interest rates in the Antipodean nation are weighing down the corporate sector.
