The United States Dollar is retracing a bit of ground this morning after running up the score against most major currencies yesterday.
Overview
Agitated investors are starting the summer considering too-hot inflation around the world, and government bond yields globally have been taking the hit as a result. US yields are no exception, as treasuries slipped through the session, but have clawed back a small amount of ground this morning. Yesterday’s trading session was the best for the Buck in the month of May, but the Bloomberg Dollar Spot Index has lost a touch of ground this morning. Nonetheless, USD is still trading just off its best levels this month against most major currencies.
This morning’s data release out of the US was a bit of a negative bag, including the second reading of Q1 GDP as well as quarterly GDP and PCE price indices. US GDP was on expectation at 1.3% for the first three months of this year, a downward revision from the first reading of 1.6%. Both the GDP and PCE price indices were revised down slightly. Both readings, though, are still showing prices rose at a rate of three percent or greater. Since this is the second reading of all these releases, however, the dollar reaction is rather muted and USD is only losing a touch of ground. Initial jobless claims also ticked up ever so slightly, and personal consumption in the first quarter was revised down from the prior reading of 2.5% to 2.0%. These are all good signs for the Federal Reserve, who have long been looking for some cooling from the US economy. A slew of speakers from the central bank over the last week and a half have emphasized that the fight against inflation is not yet finished, and risk remains to the upside, though today’s figures should help ease such pressures.
The big inflation release is due out tomorrow morning, as the Fed’s preferred inflation gauge – the PCE Deflator – is due out at 8:30AM. March’s reading for this index, while lower than what we saw in January and February, was still too hot for the Fed’s liking and they will be looking for a lower figure for April to close the lid on speculation of any further interest rate hikes.
What to Watch Today…
- Eurozone CPI May, Friday
- Core PCE Price Index, Friday 8:30 AM
- Monex USA Online is always open.
JPY ⇑
Japan’s beleaguered currency found some footing in the European trading session this morning after losing ground during yesterday’s Dollar run and has rebounded nearly three quarters of a percent today. Though speculation still abounds as to whether Japanese currency authorities will try to further support JPY as it remains near historic lows, the Yen has managed to avoid sliding back toward the level that prompted what markets widely suspect was an intervention more than a month ago. The Bank of Japan did state previously that markets would hear whether or not the moves in April were, in fact, intervention at the end of this month.
USD ⇓
Swiss Franc is leading the G10 pack against USD this morning, gaining eight tenths of a percent in European and early New York trading after Swiss National Bank President Thomas Jordan warned that a weaker CHF may be causing higher inflation in Switzerland. Yield differentials, though, are still substantially in the favor of the Dollar, which will likely cap CHF’s gains unless the SNB makes a real move to support the currency, something that given President Jordan’s comments is now a possibility. Switzerland’s central bank was the first from the Group of 7 to cut interest rates earlier this year, but may pause after inflation surprised to the upside.
