The United States Dollar is trading in mixed territory this morning on the heels of March’s PCE Deflator Index release, consolidating USD’s positioning for its first weekly loss in 3 per the Bloomberg Dollar Spot Index.
Overview
Today’s PCE data for the month of March once again came in above expectations on an annualized basis, showing the perennial fight against inflation has not yet won. Most inflationary indicators from the first quarter of this year have come in both above market expectations and above the US’s target rate of two percent, and as a result, expectations of potential easing from the Federal Reserve continue to be pushed back.
March’s PCE data, in conjunction with yesterday’s first reading of Q1 GDP from the US, paint a fairly gloomy picture of the economic status of the US. While employment readings from Q1 continued to print strong, it appears the underlying macro conditions are not quite as strong as such employment figures may indicate. As we highlighted in our annual outlook published in January, it’s quite possible that the US is simply behind the curve when it comes to global economic conditions – recent data indicates that while the Eurozone and the UK are leaving their recent economic woes behind, the US may just now be entering a period of a slowdown. It remains to be seen, however, if yesterday’s GDP reading is just a flash in the pan. Nevertheless, a slowing GDP figure combined with hot inflation readings is a worrisome sign for the Fed, who may be forced to keep interest rates higher for longer even as the economy slows. As it stands now, markets do not fully price a 25 basis point cut from the central bank until as late as December.
The week’s mixed data points are rather anxiety-inducing for traders, and such anxiety has shown in price action since Monday morning. The narrative for April thus far has been one of relentless Dollar strength, but signs the US economy may finally be slowing down could provide – finally – Dollar bears the catalyst they have been looking for.
What to Watch Today…
- Monex USA Online is always open.
JPY ⇓
Japanese Yen’s woes continue this morning in highly volatile trading after the Bank of Japan held interest rates steady overnight. BoJ Governor Kazuo Ueda gave little indication save for the same verbal cues that have become commonplace that the Yen’s historic weakness is a point of more concern, and JPY has slipped a further three-quarters of a percent against USD since yesterday’s close. It appears that traders have successfully called currency officials’ bluff on USDJPY, and while the potential for intervention does remain quite high, it may be, as they say, ‘too little, too late.’
AUD ⇑
The Australian Dollar, the week’s best performer in the G10, has gained more than a third of a percent against the USD this morning to wrap the week nearly 2% stronger than its position last Friday. A good week for Chinese equities is a primary driver of both AUD and NZD gains this week; risk appetite around the world has regained some ground, and volatility has slowed back down. Expectations that the Reserve Bank of Australia will track the closest to the Fed out of all G10 central banks this year are also keeping Antipodean currencies afloat.
