The United States Dollar is returning from the US and UK holiday yesterday a touch weaker to start the morning as traders brace for the switch to T+1 settlement for US equity trades today.
Overview
Stock futures started the short week higher, driven by the Nasdaq after Apple’s iPhone sales in China rebounded. In response, USD is trading at a one-week low and the Bloomberg Dollar Spot Index has dipped about a tenth of a percent and brings its rolling three-day losses to half a percent.
Though many officials from the Federal Reserve – and the Fed’s minutes from its May 1 policy meeting released last Wednesday – did appear to lean more hawkish, markets seem to be paying more attention to the Fed’s unwillingness to further hike interest rates. Changes in overnight interest rate swaps to reflect much lower odds of interest rate cuts this year have been dismissed as ‘old news’ and the Dollar has not seen much gain from such an adjustment since the initial big repricing of such expectations earlier this year. Riskier assets, generally, are outperforming, though Bitcoin has slid as much as 3%.
The data calendar is relatively quiet to start the week, but the advent of T+1 equity settlement does add some FX risk to an otherwise calm market. Afternoon trading hours in the New York session, already challenged by low liquidity as other global markets are closed, could see an uptick in volume-driven volatility as international investors attempt to source dollars in time for next-day settlement and prompt some added premiums for pricing. Later in the week, economic releases pick up steam and the US is due to see the second reading of Q1 GDP along with the Fed’s preferred inflation reading, the PCE index, out Friday morning.
What to Watch Today…
- US Q1 GDP 2nd Reading, Thursday 8:30 AM
- Eurozone CPI May, Friday
- Core PCE Price Index, Friday 8:30 AM
- Monex USA Online is always open.
GBP ⇑
Pound Sterling has gained just shy of two tenths of a percent against USD to start the week and is trading at its strongest point since March. Election headlines dominated the weekend after Prime Minister Rishi Sunak called for a snap election on July 4th, but volatility continues to track lower after BRC shop price data came in under expectations, showing an increase of 0.6% annually compared with the market survey of 1.0%. This is good news for the Bank of England, now expected to keep interest rates on hold until after this summer’s vote.
AUD ⇑
The Australian and New Zealand Dollars are both tracking roughly a quarter of a percent higher against the Buck this morning, bringing both antipodean currencies’ gains since their weak points Friday morning to close to a full percent. Chinese stimulus is driving such a shift in pricing, as Shanghai announced over the weekend easier requirements for home down payments and mortgages following the government’s aid for its ailing property sector. Combined with stronger US treasury yields and equities this morning many more risk-sensitive currencies are seeing a boost.
