After trade headlines upended markets yesterday, the United States Dollar is trading slightly stronger against most of its G10 peers this morning.
Overview
Yesterday’s news-driven flows saw a sharp Dollar selloff through the session, even following an abrupt about-face as a US appeals court allowed the Trump administration’s tariff policies, ruled to be an overuse of executive power just Wednesday night, to stay in place at least for now. As the court battles continue, the Administration is reportedly considering a stopgap solution to implement 15% levies for 150 days using a provision of the Trade Act of 1974. This would effectively buy time for officials to come up with individualized tariff policies per nation, all while what is sure to be a lengthy legal fight over the original set of Liberation Day tariffs continues. The Dollar, though, was unimpressed by the overturning of the original ruling and failed to gain any real momentum until overnight in the Asian session.
The last major data release of this month of PCE came in on expectations across all areas, showing prices grew 0.1% in April. The annualized reading showed a price increase of 2.1%, and the core reading showed annualized price growth of 2.5%. These figures, contrasting with yesterday’s GDP price index release that showed inflation substantially above 3%, are rather benign and help to soften the economic picture for the US. Prices did rise more in categories that have heavy exposure to imports from China, which could set the stage for a continued rise in inflation on the back of tariff policies. This rise was at least partially offset by softer inflation in the service sector. Personal income also grew by 0.8% last month, while personal spending only rose by 0.2%. Americans, it seems, are preparing for a potential economic slowdown by spending less and saving more, which likely also contributed to slower service-sector price growth.
Though the data calendar for the month of May is now all but full, month-end flows are likely to keep trading across all currencies choppy throughout the day. Headlines, too, continue to be a major price driver, and markets remain on their toes.
What to Watch This Week…
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AUD ⇓
Australian Dollar is sliding more than the rest of the G10 against USD today after retail sales for the month of April unexpectedly fell by 0.1%. Sales were expected to grow by 0.3%, so this substantial miss is keeping AUD lagging behind the pack this morning. Though earlier this week Australia released inflation data that was slightly above expectations, falling retail sales do increase the chance of an interest rate cut from the Reserve Bank of Australia in July, and AUD is the week’s worst performer in the G10.
JPY ⇑
Japanese Yen, moving contrary to the rest of its G10 peers, is the only major currency managing to post a gain against USD this morning. Japan released a surprisingly firm data set overnight that included Tokyo CPI on expectations at a 3.4% increase. The CPI reading excluding fresh food, though, grew by more than expected, coming in at 3.6% year-over-year. April’s industrial production also grew by a whopping 0.7%, well above expectations of 0.1%. Current market odds have the chance of a rate hike from the Bank of Japan by the end of the year at 67%, though last night’s data release could raise those odds.
