24/05/2024
US dollar update
Summary
Recent developments in the foreign exchange market reveal a strengthening US Dollar, driven by positive economic indicators and cautious Federal Reserve policies. The US Dollar Index rose above 105, positioning for a strong weekly gain.
In May, the Manufacturing PMI increased to 50.9 from 50.0, the Service sector PMI rose to 54.8 from 51.3, and the Composite PMI surged to 54.4 from 51.3. Weekly jobless claims dropped to 215K, below forecasts, signaling a strong labor market. This data supported the Federal Reserve’s cautious approach, reducing the likelihood of imminent rate cuts. The CME FedWatch Tool reflected a decrease in the odds of a rate cut in the September meeting to 46%.
Further bolstering the dollar, the Federal Open Market Committee (FOMC) minutes highlighted concerns over persistent inflation, despite some progress. Policymakers noted inflation running above the 2% target and expressed readiness to tighten policy if necessary. The April 30-May 1 meeting saw unanimous support for maintaining the benchmark rate at 5.25%-5.5%, emphasizing solid economic growth. Subsequent data showed a slight decline in annual inflation to 3.4% in April, with core CPI at 3.6%, the lowest since April 2021.
Fed officials stressed the impact of inflation on consumers, particularly low- and moderate-income households. Despite recognizing upside risks to inflation from geopolitical events, they projected eventual moderation towards the 2% target, albeit with uncertainty about the timeline. Governor Christopher Waller and Chair Jerome Powell underscored a patient approach to policy adjustments.
In summary, the USD’s recent strength is underpinned by positive economic data and a cautious Fed stance, amidst persistent inflation concerns and adjusted market expectations for future rate cuts. April’s durable goods orders data and the University of Michigan’s Consumer Sentiment Index for May will highlight the US economic docket before the weekend.
Market Views & Opinions
ING in today’s FX Daily article provides an estimation regarding the USDJPY currency pair:
“We don’t see a strong argument for directional changes in the dollar crosses today. Domestic stories should remain central amid a relatively quiet US calendar and the Memorial Day break. We also maintain our bullish bias on USD/JPY as markets remain carry-oriented and the slowdown in Japan’s core CPI (released overnight) endorses the rather cautious pricing for further Bank of Japan rate hikes (25bp by year-end). Markets should continue to test Japan’s FX intervention tolerance, and a move to 158.0 looks very much possible in the coming days.”
Scotiabank in a recent DAILY FX UPDATE provides its short-term technicals view for the EURUSD:
“EURUSD short-term technicals: Bullish—Price signals reflect a clear, bull (“morning star”) reversal pattern developing on the 6-hour candle chart after the EUR tested the low 1.08 area yesterday (100-day MA at 1.0815). EUR gains through 1.0865/70 intraday should see the EUR rebound develop a little more momentum for a retest of the 1.09 zone.”
IMPORTANT DISCLAIMER
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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