After the first of two major economic events today, the United States Dollar has given up a substantial chunk of last week’s gains and is trading roughly three-quarters of a percent weaker against all major currencies.
Overview
At 8:30 AM, we saw CPI for the month of May released, showing price growth was flat compared with April. Core prices rose less than expected as well, only growing 0.2% through May. The annual figures were below all economists’ expectations. After several months where US inflation showed little to no downward progress, from CPI readings at least, this is a much-welcomed sign of cooling across the board – disinflation came from both goods and services categories. Markets have already dramatically changed their expectations for the Federal Reserve’s path forward through this year. As recently as yesterday afternoon, traders were very evenly split on the chances of a second 25-basis-point interest rate cut this calendar year – as it stands now, two cuts are fully priced in. Treasury yields fell quite dramatically following this morning’s release, and the Dollar has responded in kind.
Of course, one major risk event remains on the economic calendar today as the Federal Reserve releases its latest policy decision at 2 PM today, followed, as always, by a press conference from Fed Chair Jerome Powell. While it’s highly unlikely that today’s CPI release will figure heavily into this decision from the Fed, it will undoubtedly be a topic of conversation at Powell’s press conference. The Fed will also release an updated dot plot showing its own future guidance on interest rates. March’s dot plot showed a majority of Fed officials expected three cuts this year; this is very likely to be adjusted down to two before the year is out. This is likely to bring markets and the Fed’s own expectations back in line with each other. Powell, for his part, has taken on a more dovish tone than some of his counterparts through the first half of this year, and after seeing a negative CPI surprise this morning, that trend is unlikely to change. We expect the Dollar’s slide this morning could very well continue through the afternoon, barring a big surprise from Powell & co.
What to Watch Today…
- Bank of England Meeting and Press Conference, Thursday
- S&P Global Composite Flash PMI, Friday
- Monex USA Online is always open.
EUR ⇑
After four straight sessions of losses for the single currency, today’s CPI release finally provided the Euro with a bit of footing to grab onto and gain eight-tenths of a percent against the USD. The dust around the European Parliament elections has begun to settle after French President Emmanuel Macron quashed rumors that he would resign if Marine Le Pen’s National Rally party were to secure an outright victory in the snap election in a few weeks’ time. After breaking out to the downside of rangebound trading in the last few sessions, EUR has returned to very familiar territory and could see further upside following the FOMC’s decision this afternoon.
AUD ⇑
The Australian and New Zealand Dollars are two of this morning’s biggest gainers on USD, both more than a percent in the green after the first of two major US releases today. Australian sovereign bonds have trended higher this session while US bonds nosedived after CPI, giving AUD room to run up the score against the Buck. Markets also are not sold on any interest rate cuts from the Reserve Bank of Australia this year, and compared with the now-expected two cuts from the Fed the Antipodean currency is strengthening as a result. Australian jobs data is due out tomorrow morning and is expected to show a steady unemployment rate and 30,000 jobs added through May.
