US dollar update


The US Dollar has demonstrated considerable strength, as reflected by the Dollar Index (DXY) which remains above 105. Despite mixed economic data and signs of disinflation, the market’s expectations are tempered by cautious comments from Federal Reserve (Fed) officials. Minneapolis Federal Reserve President Neel Kashkari stated that it might take up to two years to return U.S. inflation to the Fed’s medium-term target. Speaking at the Michigan Bankers Association Convention, Kashkari mentioned that current wage growth is too high to achieve the 2% inflation target immediately.

Key economic indicators released recently include a decline in Building Permits and Housing Starts, both missing estimates and Initial Jobless Claims missed the market consensus too (238K vs 235K). The Philadelphia Fed Manufacturing Survey for June also disappointed, falling to 1.3 from a previous 4.5.

Market participants are closely monitoring the Fed’s stance as it is expected to lag behind other major central banks in easing policy, with markets betting on one or two 25 basis point rate cuts by the end of the year. This is in contrast to other central banks like the European Central Bank, Swiss National Bank, and Bank of Canada, which have already started cutting rates.

The focus now shifts to the upcoming US S&P Global Manufacturing and Services PMI, set to be released today. An improvement in US business activity in June could further bolster the US Dollar, posing a potential challenge for currency pairs.

In summary, the US Dollar remains strong due to cautious Fed communications, mixed economic data, and differing monetary policies among major central banks.


Market Views & Opinions

The latest research ‘JPY: Three-Way Pressure Piling Up’ by the Saxo Bank Head of FX Strategy Charu Chanana, concludes regarding USDJPY:

“For the USDJPY pair, which is nearing the 159-level, intervention risks are a dominant consideration. Potential intervention levels are indicated by preconditions set by key Japanese policymakers, as below:

  1. A 10 yen/USD move within one month: With the recent low in USDJPY at 154.55, that puts intervention risks at levels closer to 164+.
  2. A 4% depreciation in the yen over two weeks: That will put intervention threat closer to 161 level in USDJPY.

On the downside, the 157-level may act as initial support, followed by the 50-day moving average support at 156.13.”

According to a recent article by Mitsubishi UFJ Financial Group ‘Asia FX Talk – The sum is greater than its parts’ by Michael Wan:

We continue to think that the Fed will have space to recalibrate rates lower this year with a softer labour market coupled with moderating wage growth and inflation. If this is right, this should provide some breathing room for Emerging Market FX, with the sum of global rate cuts also greater than its parts for supporting global risk appetite.



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.

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