USD - United States Dollar
The US dollar index weakened today by 0.05 percent after it outperformed the Euro by 0.6 percent, the Loonie by 0.4 percent, the Aussie dollar by 1.5 percent, the Kiwi dollar by 2 percent, and the Pound by 0.9 percent last week.
The most important driver of the Greenback this week is the Fed announcement on Wednesday. These days, the Fed governors don’t want to make the news, but the market perception is that they are under pressure to cut rates sooner than they have inferred. Powell also seems to be trying to create as little excitement as possible because his announcement comes just before the G20 meeting in Japan. The continued efforts by Trump to bully the Fed into cutting rates make it even more critical for Powell to keep his head down and not make waves. However, the fixed income market indicates that inflation continues to easy, which suggests that the market has lost all confidence in the Fed’s ability to keep inflation close to its official target of 2 percent.
This morning, the Empire State Manufacturing Survey shows that business activity took a sharp turn downward in New York State, according to firms responding this month the survey. The headline general business conditions index plummeted twenty-six points, its most significant monthly decline on record. It came in at -8.6, when the expected number was +11.0, and the previous figure was +17.8. Weak US CPI (core at 0 .1 percent versus 0.2 percent month to month) also gave us a clue that, fundamentally speaking, the US dollar does not have reasons to go higher.
The US-China trade spat is making US companies send letters to the US trade representative's office saying they have hardly any option besides China. Theory suggests it is difficult to have an idea on how the trade tensions between the US and China will evolve. Also, market participants are jittery around the inflammatory rhetoric between the US, Iran, and the elections in the UK. The AUD/USD and NZD/USD traded in a very bearish tone last Friday, and market participants are awaiting the minutes from the June 4th Reserve Bank of Australia meeting. The U.K. political drama continues to have a negative influence on the Sterling. Boris Johnson, who is on record for saying the U.K. should not be afraid of leaving the EU without a deal, is the leading candidate to replace Theresa May. The Loonie, in comparison with AUD, NZD, and the GBP, is just an observer, not a volatile currency, which might change after the Canadian CPI numbers.
Equity markets seem to be in a waiting mode with an optimistic bias today. In the fixed-income world, rates seem to be trading in a very pessimistic way. However, the FX market is very complacent, which in theory means that we should expect big moves sooner or later in the FX market.
Some sophisticated market participants such as BofAML expect the Japanese Yen to continue outperforming other major currencies. They also expect the BoC to be on hold this year, but they now expect it to cut 25 basis points in early 2020.
1.3373 - 1.3417 ▼EUR/USD:
1.1215 - 1.1275 ▲GBP/USD:
1.2526 - 1.2638 ▼AUD/USD:
0.6833 - 0.6900 ▼NZD/USD:
0.6482 - 0.6550 ▲