The U.S. Dollar stopped some of the bleedings after hitting fresh multi-month lows against currencies across the board in the past two trading sessions.
Overview
This week was characterized by the revelation of the lowest inflationary growth in two years and a turning point for the Federal Reserve’s monetary policy for the past 15 months after announcing a pause in hiking interest rates. Subsequently, this has reignited risk appetite while also improving the economic outlook for the second half of the year. The “soft-landing” predicted at one point or another may, in fact, be a more realistic scenario than at any period post-pandemic.
While the domestic front will have to remain stable and with an eye towards further growth, the Fed will likely stay accommodative while not necessarily hinting at cutting interest rates. The fact that Fed Chairman Jerome Powell explained the members of the committee did not envision any reductions in the next two years was significant.
The trajectory and advancement of other currencies against the buck from now on will be seriously impacted by how high the odds remain that other central banks will continue to increment their borrowing costs to combat more damaging levels of inflation in their respective regions. It will be possible that a pivot to match the Fed, thus no central bank policy divergence, could propel the buck once again. For now, we remain bullish on other tenders as a global recovery and a more dovish-performing Fed leave room for others to either impress rather than disappoint.
What to Watch Today…
- No major economic events are scheduled for today
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YEN ⇓
The Japanese Yen fell to a fresh new low point against the dollar after the Bank of Japan meeting solidified once again their stance to keep things easygoing. BOJ Governor Kazuo Ueda and officials agreed to ignore the current wave of tightening happening almost everywhere else, thus creating no difference between them and a now less aggressive Fed. Yen is now at its weakest value since November last year. An economy that showed just a tad of growth is also not impressing anyone who is still waiting for Yen to offer some yield
GBP ⇑
Sterling is trading at its strongest level since April 2022 following increased bets on a hike by the Bank of England when they meet next Thursday. BOE officials have already mentioned the need to get rid of very stubborn inflation, but have also hinted at being satisfied with consumers being less repelled by it. Ultimately, the economy has not been dented to the point of recession manifesting itself. U.K. indicators have avoided contractions seen elsewhere despite the highest food prices experienced in over 45 years. Current chances of increasing interest rates by 25-basis points are at 97.0%, so anything else would be a shocking surprise.
