10/05/2024
US dollar update
Summary
The dollar index holds steady at approximately 105.10 on Friday. Despite a slight rebound, short-term uncertainty remains due to higher-than-expected Initial Jobless Claims for the week ending May 3, which reached an eight-month high of 231,000, exceeding the forecasted 210,000. This highlighted concerns over potential labor market weakness in the US amid the Federal Reserve’s restrictive monetary policy stance.
The jobs data strengthened expectations that the Fed might lower interest rates later this year. Market participants are closely monitoring upcoming inflation data for further insights. April’s US Consumer Price Index data will be released on Wednesday, followed by the Producer Price Index that is released on Tuesday. Higher-than-expected inflation numbers could diminish the likelihood of rate cuts in 2024.
Fed Chair Jerome Powell acknowledged persistent inflation and suggested that rate cuts could be delayed. Currently, the CME FedWatch tool sees an 8.5% chance of a rate cut in June, 33.1% in July, 67.9% in September, and a 79.9% probability in November.
Meanwhile, global monetary policy developments are also influencing the foreign exchange market. Two Bank of England policymakers have shown support for a rate reduction this summer, while the European Central Bank is expected to start cutting rates in June. These global shifts add complexity to the currency market outlook as the dollar navigates mixed economic signals, hawkish Fed rhetoric, and diverging global monetary policies.
Investors are now awaiting further guidance from Fed speakers scheduled for later on Friday, including Governor Michelle Bowman, Chicago Fed President Austan Goolsbee, Minneapolis Fed President Neel Kashkari, Vice Chair for Supervision Michael Barr, and Dallas Fed President Lorie Logan. Their comments are expected to shed light on the direction of interest rates.
Market Views & Opinions
ING in today’s article “FX Daily: Slower US jobs narrative gaining traction” comments on the recent Initial Jobless Claims results:
“The negative dollar reaction to a modest tick-up in US jobless claims yesterday (231k versus consensus 212k) tells us that: a) markets are probably lacking some sense of direction in the period between payrolls and US CPI; b) the generally overbought dollar remains quite vulnerable to even slightly softer US data releases; c) markets may be buying in more convincingly on the softening US jobs market narrative.”
Scotiabank at the recent DAILY FX UPDATE says about EURUSD:
“EURUSD short-term technicals: Neutral—The EUR’s drift over the past few sessions takes back to mid-range effectively. The EUR’s broader uptrend from the mid-April low remains intact and short-term trend signals are still leaning EUR-bullish—but the signal is weakening somewhat. There is support at 1.0725 intraday. Support below here sits at 1.0675/80. Resistance is 1.0755/60.”
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The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
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