The United States Dollar is once again on the back foot this morning and is set for its worst week in 5 as trade deals and inflation data come back into focus after a heavy macroeconomic week.
Overview
Through the overnight session it did appear that the Buck might avoid a fifth straight session of losses, but following the release of US PCE along with personal incoming & spending for May it appears that possibility has been erased. President Trump also announced yesterday that a trade deal had been struck with China, but the details of the deal appear to be quite similar – if not exactly the same – as previously agreed-upon terms from the last two meetings between the two nations.
The PCE Price Index for May, released this morning, showed that price inflation remained relatively steady last month, though year-over-year prices still grew more than the 2% target set by the Federal Reserve. Core prices, excluding food and energy, grew slightly more than expected but still remain fairly benign especially when compared to the quarter-over-quarter GDP price index released yesterday, showing inflation above 3%. Of concern in this morning’s release, though, are personal income and spending figures, showing that income shrunk by an unepected 0.4% last month and spending declined 0.1% well below expectations for both indicators. These are weighing on the Dollar much more than any upside from PCE might have hit on the other side, and the US economic picture continues to be murky at best. Discussion continued yesterday, too, that Jerome Powell could be replaced well before the end of his term as Fed chair, adding further negative energy to the Buck’s movement for the last week of the quarter.
With all major data releases now out of the way for the week, market focus should likely turn back to trade conversations ahead of the July 9th expiration of a 90-day pause on reciprocal tariffs implemented April 2nd. Howard Lutnick yesterday said that the US and China have agreed on the framework of a deal, but the tenets of the conversation seemed much the same as previous deals. Lutnick also indicated that the US and India may be close to a deal, but again, markets likely will not believe it until they see it.
What to Watch This Week…
- University of Michigan Consumer Sentiment, Friday 10AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
The single currency’s bull run this week is continuing this morning, and EUR is trading a third of a percent stronger than at yesterday’s close against the Buck. Since its low point in early February, the single currency has appreciated an eye-popping 15.6% in just five months, as foreign investment and participation in US securities markets appears to be moving out of the US and over to European markets, which at least in the current backdrop look to be more stable. EUR has also seen an increase in safe-haven flows as the Dollar’s haven status becomes more tenuous.
CAD ⇑
The Loonie has been trading steadier against the Dollar than the majority of its G10 counterparts this week, and despite an undershoot in GDP released this morning is managing to stay flat versus the Buck. Despite data showing the Canadian economy contracted by 0.1% in April on expectations of a flat reading, CAD is a beneficiary of the Dolalr-negative backdrop today. GDP looks to have been driven lower by a larger-than-expected drop in manufacturing and wholesale activities, but investors are much more focused on trade noise.
