31/05/2024
US dollar update
Summary
On Thursday, the US Dollar Index retreated after a sharp recovery on Wednesday, driven by bond market gains. This pullback followed revisions to the US Gross Domestic Product (GDP) and an increase in Initial Jobless Claims, which pointed to a softening labor market. Despite these signals, the likelihood of interest rate cuts in June and July remains low, though investors are keenly awaiting the Personal Consumption Expenditure (PCE) figures due on Friday, which could significantly influence Fed expectations.
Revised data showed US GDP increased at an annual rate of 1.3% in Q1 2024, down from the previous quarter, reflecting slower consumer spending. Alongside the GDP revision, the quarterly PCE price index, excluding food and energy, rose by 3.6%, slightly lower than estimates. Under these revisions, market expectations for interest rate cuts were slightly altered, with the November Federal Open Market Committee (FOMC) meeting seen as the likely date for the first 25 basis point cut.
On Friday, the dollar index steadied at around 104.80, as many Fed officials had made statements during the last hours. Comments from New York Fed President John Williams stated on Thursday that, although inflation remains elevated, he believes that Fed policy is on track to gradually bring price growth down to the Fed’s 2% annual target. Meanwhile, Dallas Fed President Lorie Logan expressed concerns about potential upside risks to inflation, advocating for cautious policy adjustments. During an interview with Fox Business, Fed Bank of Atlanta President Raphael Bostic expressed his view that additional rate hikes are not needed to attain the Fed’s 2% annual inflation goal.
In summary, the US dollar’s movements have been closely tied to revised GDP figures and labor market data, which reflect a cooling economy. Investor focus is now on upcoming PCE monthly data, which could further impact Fed rate expectations.
Market Views & Opinions
XM Research team at today’s Market Comment says about the upcoming US PCE announcement:
“A slowdown in PCE inflation may encourage some participants to add to their September rate cut bets and thereby push the US dollar a bit lower. However, considering that the preliminary S&P Global PMIs revealed that both input and output prices accelerated in May, a major repricing may be unlikely.”
According to today’s Reuters article (‘Dollar firms against peers ahead of inflation test’ by Brigid Riley), Sim Moh Siong, currency strategist at the Bank of Singapore said:
“The U.S. economy looks resilient even though there are signs of slowing at the edges… I think the main struggle that U.S. inflation remains sticky hasn’t really changed.”
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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