14/06/2024
US dollar update
Summary
The US Dollar Index (DXY) extended its positive momentum on Thursday, climbing above 105.00. Despite mixed economic indicators, with softening inflation but a resilient labor market, the Fed projected fewer rate cuts in 2024. The Federal Open Market Committee (FOMC) updated its dot plot, showing just one rate cut for 2024, down from three expected in March, which adjusted market expectations to one or two cuts this year.
The US Bureau of Labor Statistics (BLS) reported on Wednesday that the annual inflation rate in the US, indicated by the Consumer Price Index (CPI), dropped to 3.3% in May from 3.4% in April. This figure was below the anticipated market expectation of 3.4%. On Thursday, the Producer Price Index (PPI) was announced to rise 2.2% annually in May, below the expected 2.5%, and the core PPI increased by 2.3%, also below expectations. Weekly Initial Jobless Claims rose to 242K for the week ending June 8, higher than anticipated.
Following these announcements, the dollar recovered losses incurred after a softer Consumer Price Index (CPI) and Producer Price Index (PPI) prints. The Fed’s more cautious stance on inflation was highlighted by an upward revision of PCE forecasts and maintaining the federal funds rate at current levels. The dollar’s bullish momentum was further supported by political uncertainties in Europe, particularly in France.
On Friday, the dollar index keeps on rising and it’s currently around 105.50, poised to advance for the second consecutive week. The Fed’s signal of only one rate cut this year, contrasted with three previously anticipated in March, supported the dollar despite weaker-than-expected consumer and producer inflation data and a rise in unemployment claims to a ten-month high.
Market Views & Opinions
Danske Bank in a recent research report ‘Research US – Fed review: We still see cuts starting in September’ concludes:
“We remain happy with our call for two 25bp rate cuts this year, followed by four more in 2025. As real interest rates are set to remain at clearly restrictive levels well towards next year, we see risks tilted towards somewhat weaker growth and higher unemployment than the Fed pencils in, although tail-risk of a deeper downturn has clearly eased. QT was not discussed today, but after the earlier announcement on slower pace starting from this month, we think that QT will complement the restrictive policy well into 2025 as well.”
According to ING’s today’s article (‘FX Daily: French political risk takes its toll on the euro’):
“We think the performance of European asset markets will dominate FX markets today. But on the US data calendar, we have what should be a soft May import price release and the June consumer sentiment and inflation expectations data. Fed Chair Jerome Powell made a point of saying this week that the US consumer was solid. Consensus expects a firmer sentiment reading today and a firmer US May retail sales reading next week.
For the time being then, we think the dollar will shake off this week’s drop in US rates and DXY will probably test 105.45/55 with risk to 105.90 should the euro come under more pressure later in the day as investors brace for more poor French opinion polls this weekend.”
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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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