Though FX moves this week have been relatively calm so far, the United States Dollar is a touch weaker this morning against most major currencies.
Overview
Corporate earnings for Q2 are now being released in earnest this week, and thus far have overall been rather gloomy – as a result, US equities are declining on the week. Even Alphabet’s upside surprise for the last quarter saw its stock decline 2% in overnight trading as many investors fret that the “AI bubble” may, in fact, finally be popping. Tesla reported its lowest profits in more than five years, and missed its earnings targets after price cuts. The market mood as a whole is fairly subdued, as concerns surrounding global economic growth continue to abound.
Currencies of nations that trade heavily with China, in particular, have faced substantial losses this week after the PBoC cut a key short-term interest rate Sunday night, signaling longer-term concerns around the nation’s economic growth. In the Eurozone and UK, too, PMI readings for the month of June were fairly lackluster, released earlier this morning. Germany surprised traders to the downside and showed its manufacturing sector contracted rather steeply and the Eurozone’s composite reading was anemic at best, showing only slight growth through June. The US PMI reading is due out later this morning as well, expected to show not necessarily robust growth but a more positive picture than the European and UK pictures.
Though the week’s data calendar was light through the front half, the back half contains a slew of key US releases ahead of the Federal Reserve’s meeting and interest rate decision next week. Following PMIs this morning, Q2 GDP is released tomorrow morning and the Fed’s preferred inflation gauge of PCE is out Friday, which could inject some volatility into an otherwise calm trading week. Notably, FOMC officials are in their blackout period ahead of next Wednesday’s decision, so markets will not receive any commentary from voting members of the Fed ahead of then.
What to Watch Today…
- Bank of Canada Interest Rate Decision, Wednesday
- US GDP Q2 Advance, Thursday 8:30 AM
- US PCE Price Index, Friday 8:30 AM
- Monex USA Online is always open.
JPY ⇑
Japanese Yen is once again moving more dramatically than other major currencies around the world, gaining more than a percent against the United States Dollar overnight. The Bank of Japan is also meeting next week, and while oddsmakers technically have this interest rate decision as ‘live,’ traders are bracing for the impact of a potential interest rate hike that moves contrary to the easing cycles that most other major central banks have begun so far. Japan’s uneven economic growth, namely in weak consumer spending, remains a concern for currency officials, but chances of an interest rate hike have given JPY more than 5% of a gain against USD since earlier this month when officials are suspected to have intervened on behalf of the currency.
CAD ⇓
The Loonie, though flat in trading this morning, has declined roughly half a percent against the USD through the last week ahead of the Bank of Canada’s interest rate decision later this morning. The BoC is widely expected to cut interest rates by 25 basis points today, which could spark some renewed weakness for CAD after economic growth has remained choppy at best through the first half of this year. Markets are currently split between expecting two and three interest rate cuts this year, but easing today is all but guaranteed.
