The U.S. Dollar is trading in mostly tight ranges without much in terms of data to really move the needle.
Overview
While not a lot of in terms of indicators to chew, it has been interesting to hear Fed officials explain their take on the future of inflation. Minneapolis Fed President Neel Kashkari is going to give some statements today following Richmond counterpart Thomas Barkin’s comments from yesterday indicating that the current restrictive state of monetary policy will soon bring inflation back down to its 2.0% inflationary target.
Back in December, Personal Consumption Expenditures had grown on average by 1.6%, but in Q1, it jumped to 3.7%, thus preventing the Fed from cutting interest rates in the early part of this year as once thought. Inflationary as well as other gauges will be coming next week to test the weakening revealed in recent April numbers. Meanwhile, down in Australia, the RBA chose to not cut interest rates, but it had no real impact on the currency.
Emerging-Markets have recovered some ground in May, driven by the slowdown in the U.S. that hints at possible pivot to looser policy from the Fed. In geopolitics, there was a bit of hope after the announcement of a deal for a potential ceasefire in the Israel-Hamas conflict, however it has already been reported to be rejected. China’s Xi Jinping continues his tour in Europe after visiting France’s President Emmanuel Macron. The two leaders seemed to agree that trade and peace are global goals, but Macron made clear that Ukraine was a point of major disagreement, exacerbating a decoupling with China ever since the pandemic. We shall see how all these forces make for more exciting FX moves out there.
What to Watch Today…
- Banxico Meeting Thursday
- BOE Meeting Thursday
- Monex USA Online is always open.
MXN ⇑
The Mexican Peso is trying to mount a comeback following a devastating April to its yearly fortunes. Indeed, after losing in 3.0% of its value in one month, it knocked off the gains that had been had over the Buck thus far in the year. Perhaps Thursday can be a day of reckoning if the central bank, Banxico, decides to stay put and not cut into its interest rates any further. At the same time, a “dovish” announcement that results in a reduction to borrowing costs or promises more down the line, will most certainly keep Peso far from its 2024 peaks, which at one point equaled a 2015-high.
GBP ⇑
The British Pound is not trading in any wild ranges ahead of the Bank of England meeting also this Thursday. After some economic figures showing the U.K. overcame a mild recession, hopes have been that the country has overcome the worst of its post-pandemic cooldown and losses. BOE Governor Andrew Bailey’s press conference will be crucial as he will be questioned about the divergence with the Fed and other central banks. Some economists have accused the BOE of getting away from fundamentals and refusing to act sooner in addressing low levels of, if not negative, growth. Chances of a cut to be applied by the European Central Bank at their June meeting is 94.0%, while the BOE’s odds stand at just 43.0%. We feel officials can surprise us.
