28/06/2024
US dollar update
Summary
The US Dollar (USD) has shown resilience, reaching a two-month peak today, buoyed by expectations around upcoming US inflation data. The USD Index (an indicator of the US dollar’s value compared to a group of foreign currencies) climbed above 106. This follows a series of economic data releases and commentary from Federal Reserve officials, which collectively suggest a cautious approach to interest rate cuts.
Recent US economic data indicated a moderation in growth momentum, with final Q1 GDP growth confirmed at 1.4% and Durable Goods Orders in May slightly exceeding expectations at 0.1%. In the labor market, continuing jobless claims rose to their highest levels since November 2021, signaling potential issues in the jobs market.
Fed officials have emphasized a cautious stance. Fed Governor Michelle Bowman and Atlanta Fed President Raphael Bostic underscored the importance of ensuring inflation returns to 2% before considering rate cuts. They highlighted ongoing inflation risks and indicated that the Fed is not in a rush to cut rates.
The USD’s trend also reflects geopolitical factors. The first US presidential debate between President Joe Biden and former President Donald Trump did not significantly impact the dollar. However, market sentiment deemed Trump to have performed well, which may have provided some support to the USD.
Market attention is now focused on the release of the Personal Consumption Expenditure (PCE) Price Index. Forecasts suggest a year-on-year rise of 2.6% in the Core PCE Price Index, down from April’s 2.8%. Additionally, personal income and spending are expected to increase by 0.4% and 0.3%, respectively. Lower-than-expected inflation figures could strengthen the case for rate cuts, while stronger data may push back the timing of any monetary easing.
Overall, the USD appears poised for further gains, contingent on the upcoming PCE data. The USD Index’s performance in June suggests robust underlying support, with a monthly gain of 1.05% and a 4.55% increase for the first half of 2024.
Market Views & Opinions
According to a today post ‘US dollar rally is unlikely to be sustained’ from UBS Wealth Management – Global:
“…we believe recent US dollar strength should fade in the coming months, as a slowdown in US growth allows the Fed to start cutting rates in September, which is our base case. The greenback, which we view as richly valued, should also face downward pressure as markets start to price a deeper Fed rate-cutting cycle. Finally, fears about the size of the US fiscal deficit may prove to be another headwind over the longer term.”
UOB in the ‘Chart of the Day’ published today provides its view regarding GBPUSD:
“The 1.2859 high is a strong resistance level now. Provided that this level remains intact, GBP/USD could continue to edge lower in the next couple of months. As downward momentum is not strong, any decline will likely face considerable support near the bottom of the weekly Ichimoku cloud at 1.2475. The ascending trendline connecting the lows of March 2023 and October 2023 (now at 1.2345) is unlikely to come into view.”
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.
a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.
