This week’s jam-packed economic calendar finally took a toll on the resilient United States Dollar yesterday afternoon, and into this morning the Dollar continues to trade in weaker territory than yesterday morning.
Overview
Treasury yields were quite the focus through the trading session, initially turning lower but swinging higher through the afternoon, though it appears USD strength on treasury yields alone may be tapped out. When coupled with manufacturing data showing a contraction in the sector and a dismal ISM employment survey, it was enough to reverse the Buck’s fortunes for the week.A busy week for the Dollar continues today after yesterday’s Federal Reserve interest rate decision saw the central bank hold interest rates steady. Though not the only event on the calendar yesterday, the Fed’s the primary driver of USD weakness through the afternoon, and this trend is continuing into this morning. While markets are relatively split on whether Jerome Powell’s tone leaned dovish or hawkish, our read is a slightly dovish one. Of note: Powell’s central question (that he avoided answering) was whether or not another interest rate hike is necessary. He did touch on several times the surprising resilience of the US economy and noted that this record-tightening cycle didn’t seem to be weighing too much on the larger picture, but that, once again, the labor market will likely need to soften to bring inflation back to target. All said another interest rate hike this year is becoming increasingly unlikely.After the Bank of England held interest rates steady this morning, tomorrow sees key employment figures from the US that, if they continue to run hot as they have the last several months, could flip the Dollar back into positive territory. Today’s trend, however, is decidedly negative.
What to Watch Today…
- Bank of England Policy Decision, Thursday 8 AM
- UK CPI, Friday
- Nonfarm Payrolls, Friday 8:30 AM
- Monex USA Online is always open
GBP ⇑
Pound Sterling recovered half a percent this morning and nearly a percent yesterday against USD as the Bank of England struck a more hawkish tone than its counterpart in the US. Governor Andrew Bailey did note that the central bank is aware of continuing downside risks to the UK economy but was sure to tell traders that he does not expect to cut interest rates below their current state for quite some time, giving GBP further upside. It remains to be seen, however, if the UK can avoid an economic contraction when Q3 GDP is released next Friday.
JPY ⇑
Japanese Yen is once again gaining substantial ground against all G10 currencies after Prime Minister Fumio Kishida and his cabinet approved a larger-than-expected stimulus package meant to ease the impacts of inflation on Japanese households. Markets seem to believe this is a precursor to real tightening measures from the Bank of Japan, which has stated that they would like to see sustained economic growth before ending the nation’s negative interest rates and ultra-easy monetary policy.
