The U.S. Dollar is trading in stronger ranges, recovering from the losses at the end of last week as investors take a breather from risk appetite to assess the future of central bank policy.
Overview
While the Fed paused last week, officials indicated that they do not intend to be cutting interest rates any time soon and that their mandate would have to change only if drastic losses in economic indicators. The Wait-and-See approach is one to doubt, especially if inflation remains stubborn, Fed will likely hike again. This makes prospects for the buck more attractive as it takes away from the idea that central bank divergence will sink the buck. However, if the Fed does pause for some time, tender of all kinds will climb against it.
Investors want also to see just how much of a recovery there is to have from China as the rest of the globe adjust to relying less on the world’s second-largest economy for trade. Nearshoring is changing how Europe and the Americas think about globalization. The negative effects of the war have renewed a sense of protectionism, and markets wonder how that will play out.
As OPEC+ tries playing politics, leadership elsewhere is looking to accommodate and countless on the cartel. This chaos and lack of a concrete guide for the next six months can bode well for the dollar as it tries not to slip too much from familiar ranges. Summer s here to see if it can surprise us.
What to Watch Today…
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GBP ⇓
Sterling fell from its best levels against the buck since April of last year following a dollar rally based on uncertainty over economic growth. Following the Bank of England’s meeting last week, volatility is high for the Pound as major data hit the wire this week, and traders bet on the chances of a change in BOE policy. As inflation remains rampant, many economists worry the higher borrowing costs are only a recipe for tougher economic upheaval in what is left of the year. Tomorrow will be key as we get to look at Consumer Price Index as well as Producer Price Index figures for May.
AUD ⇓
The Australian Dollar fell by over 1.0% overnight and has dropped from its best point over USD since February. Good momentum across equities and a surprise hike by the Reserve Bank of Australia boosted “Aussie” naturally, but the enthusiasm for anything down there is quickly fading. After the release of the RBA minutes, traders found it interesting not to see any mention of consideration of hiking again down the line. With the global situation at times looking fragile, “Aussie” can slip as quickly as it gains from risk as well as other factors like a solidly growing Chinese market. Expect these wild moves to remain until there is clarity about central bank thinking, which may not be the case until 2024.
