After a winning week, the United States Dollar is finally taking some losses this morning, trading lower against most majors.
Overview
This morning, data released out of the US showed personal income and spending both slowed last month, welcome news to the Federal Reserve. Though Jerome Powell promised on Capitol Hill this week two more interest rate hikes, it’s becoming clear that only one may be necessary. This is prompting a decrease in demand for USD across the board amidst month-end flows.
This morning’s release also showed that the Fed’s preferred inflation gauge, the PCE Deflator, is slowing materially, posting both a month-over-month and year-over-year decrease in both full reading and core. Inflationary pressure appears to be easing faster in the US than in most other major economies – good news for the macroeconomic picture, but bad news for the Buck. Our forecast of declining USD strength through the second half of the year remains strong. Current market expectations for the Fed’s tightening cycle show a hike in July is likely, but markets are no longer buying Powell’s 2-hike sale, and it’s more likely than not that the Fed will pause in early September.
What to Watch Today…
- No major economic events are scheduled for today
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AUD ⇑
The Australian and New Zealand Dollars are close to the top of the G10 currency this morning, posting 0.5% and 0.7% gains against USD, respectively. Trimming monthly losses on short-covering by exporters for the month’s end, the island nations’ ties to China are of utmost importance today. As the outlook for the Federal Reserve changes, the Reserve Bank of Australia’s move to pause earlier this year is no longer causing the extreme sell-off versus USD it was earlier this quarter.
GBP ⇑
Pound Sterling has found its winning footing again after taking heavy losses Wednesday and Thursday of this week. It seems markets are beginning to digest the implications of sustained interest rate hikes from the Bank of England, predicted to raise interest rates at least four more times and hit a target rate of 6 percent by the end of this year. The macroeconomic picture in the United Kingdom, however, remains fairly grim, capping gains this morning shy of three-quarters of a percent against the USD.
