The United States Dollar has, since yesterday morning, reversed all of its gains from the beginning of the week and then some and is trading decidedly weaker against all of its G10 peers.
Overview
Following a well-telegraphed Iranian retaliation regarding the US’ airstrikes on nuclear facilities over the weekend, any risk-off trading that gave the Buck a boost early on Monday has all but evaporated completely on the news that President Trump has allegedly brokered a ceasefire between Israel and Iran. Oil prices have slumped as well. Israel, though, was quick to accuse Iran of breaking this ceasefire, which Iran did not in an official capacity acknowledge it would abide to, and it appears this fragile peace has already been broken on both sides. The US, however, looks like it may stay out of this round of conflict after allegedly meeting its goal of severely crippling Iran’s nuclear weapon ambitions.
Any peace talks, however fragile they may be, amounts to good news for risk-forward assets, and the Buck is bearing the brunt of that move this morning. Following a slump in oil prices as traders assessed that it is fairly unlikely that Iran will close or cripple the Strait of Hormuz, US-based traders began pricing in some easier inflation data for the coming months expecting energy prices to remain relatively stable through this calendar year, and that repricing has translated into bets on more easing from the Federal Reserve. Vice Chair of the FOMC Michelle Bowman in a speech yesterday said she thinks it might be appropriate to cut interest rates beginning as soon as next month, a bit of a surprise take from the noted hawk. Chair Jerome Powell is also set to take the congressional stage for his semi-annual testimony later this morning, and most strategists believe that he could strike a more dovish tone than he did last week in the press conference following the Fed’s decision to hold interest rates steady.
The data calendar also continues to inject uncertainty into markets in the back half of this week, with not only the final reading of US Q1 GDP but also the PCE Deflator Index, the Fed’s preferred inflation gauge. Should inflation figures remain relatively benign, the Dollar could stand to lose even further ground as the week continues.
What to Watch This Week…
- US Final Q1 GDP, Thursday 8:30AM
- Banxico Interest Rate Decision, Thursday
- US PCE Deflator Index, Friday 8:30AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇑
The single currency dramatically reversed course after losing ground in the first few hours of yesteray’s session and is now trading at its strongest rate since November of 2021, more than three and a half years ago. Further signals of de-escalation in the Middle East are keeping EUR floating above the fray this morning, though it’s not the best performer in the G10. Since the energy crisis in Germany during the height of the COVID pandemic, EUR has proven to be quite sensitive to spikes or declines in oil prices, tracking an inverse relationship typically.
JPY ⇑
Japanese Yen has whipsawed and, after losing more than a percent of ground against USD in early trading Monday morning, is now nearly a percent stronger than at yesterday’s close. Though JPY is typically considered to be a ‘safe-haven’ currency and benefits from risk-off moves, the sharp move downward for the Dollar is benefiting JPY and its counterpart CHF today as traders turn their attention more toward economic uncertainty in the US and the potential for lower interest rates. The Japanese Government, as well, is continuing to monitor the bond market after a streak of dismal auctions.
