Home Daily Commentaries US dollar turns bearish ahead of Fed rate decision

US dollar turns bearish ahead of Fed rate decision

Daily Currency Update

The US dollar has erased its previous gains and lost ground against most of its six major peers. Losing notably against the sterling at a one-month high near 1.2670, the DXY was seen trading at the 103 levels. The Federal Reserve is scheduled to announce its interest rate policy decision this morning and soon after will publish the revised brief of Economic Projections (SEP). Markets are awaiting the outcome of this policy meeting and anticipating the Fed will the policy rate unchanged; however, at the same time expecting a strong probability for at least one more rate hike this year. The 10-year US Treasury bond yields, often regarded as a benchmark for the market, dropped below 3.7%. This dip in bond yields comes after the initial reaction from the market yesterday as data showed inflation rose at a 4% annual rate for May, the lowest in the last 2 years. Bond yields were seen recovering towards 3.8% in today’s early trading sessions, with little to no effect on the US Dollar. The monthly Producer Price Index (PPI) fell by 0.3% in May versus the anticipated 0.1% contraction. Annualized headline PPI has softened to 1.1% against the expected 1.5% and the prior release of 2.3%.

Key Movers

The EUR/USD pair shot up to near the 1.0820 levels after US PPI data showed wider-than-expected deflation. The Eurozone is awaiting the interest rate decision by the European Central Bank (ECB) tomorrow. It is anticipated that the ECB President, Christine Lagarde may raise interest rates by 25 basis points (bps) to 4%.

The sterling soared dramatically as markets are expecting the inflation figures from the UK to remain persistent. The GBP/USD pair claimed a fresh monthly high after a comparative analysis of inflation and employment was published. This analysis indicated that the Bank of England (BoE) may be poised to raise interest rates further to control sticky inflation. Soaring food and worrying shortages of labor are a concern for the policymakers as the UK’s current inflationary pressures are four times higher than the desired rate. GBP/USD was last seen refreshing its monthly highs above the 1.2660 levels. The next important read for UK inflation will be the Consumer Price Index (CPI) on June 21 and the interest rate policy decision on June 22.

The black gold, West Texas Intermediate (WTI) crude oil, printed minor gains around the 69.60 mark paring its weekly losses. WTI tested the territory above 70.00 earlier today, this in turn is benefiting the Canadian dollar’s performance. The oil prices are certainly loving the neutral policy predictions for the interest rates by Fed.

Expected Ranges

  • EUR/USD: 1.0780 - 1.0855 ▲
  • GBP/USD: 1.2595 - 1.2698 ▲
  • AUD/USD: 0.6757 - 0.6835 ▲
  • USD/CAD: 1.3279 - 1.3318 ▼