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Title: Dollar struggles for support ahead of crucial Fed meeting

Jun 14, 2023 03:16AM ET

By: AnalysisWatch

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The U.S. dollar edged lower in early European trade Wednesday, struggling for traction ahead of the conclusion of the latest Federal Reserve policy meeting.

At 02:55 ET (06:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 102.898, near three-week low

The dollar fell sharply on Tuesday and is struggling to find friends during the current session after soft U.S. inflation data largely cemented the view that the Federal Reserve will decide to keep interest rates unchanged later in the day when it concludes its two-day policy-setting meeting.

The U.S. consumer price index rose just 0.1% last month, a year-on-year increase of 4.0%, the smallest increase since March 2021.

With a pause now largely priced in, the uncertainty largely hangs around the language the Fed officials will use to guide future moves, i.e., whether the central bank will want to reinforce the idea that the tightening cycle is not yet done.

U.K. economy grows in April

GBP/USD edged lower to 1.2608 after soaring 0.8% in the prior session and hitting the highest level since May 11.

Data released Wednesday showed that U.K. gross domestic product grew by 0.2% month-on-month in April, as expected, but manufacturing and construction contracted.

However, sterling remains supported by Tuesday’s strong wage growth, which boosted the likelihood of continued tightening by the Bank of England next week.

Eurozone industrial production data due

EUR/USD fell 0.1% to 1.0787 ahead of the release of the eurozone industrial production data for April, which is expected to show a recovery from the previous month’s sharp fall.

This comes a day ahead of the latest European Central Bank meeting, with a quarter-point hike widely expected to be announced

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Title: Euro zone bond yields retrace Monday's rise as German inflation cools

June 20, 2023 03:55 AM ET

By: AnalysisWatch

Eurozone bond yields fell on Tuesday, paring some of Monday's strong gains and reacting to a larger-than-expected drop in German producer prices.

The yield on two-year German bunds (DE2YT=RR), which is highly sensitive to interest rate expectations, was last 2 basis points (bps) lower at 3.187%.

The yield, which moves inversely to price, rose 4bp on Monday to hit a three-month high of 3.214% at the open of Tuesday's trading.

Tuesday's data showed that the prices German manufacturers receive for their goods and services fell by 1.4% in May from April, a much larger drop than the 0.7% economists had expected.

Rieger said the data "probably adds a little bit to the momentum we're seeing this morning."

He added: "It fits into the picture that we're seeing a bit of a slowdown. But is this the most important number? No."

The yield on the German 10-year bond (DE10YT=RR), the benchmark for the eurozone, last fell 3bp to 2.487% after rising 5bp the previous day.

The German data adds to signs of cooling inflation in the eurozone after data released earlier this month showed inflation in the 20 countries sharing the euro eased to 6.1% in May from 7% in April.

However, the inflation rate is still well above the European Central Bank's 2% target.

The yield on Italy's 10-year IT10Y government bond fell 5 basis points to 4.082% for the last time on Tuesday after rising 9 basis points the previous day.

The closely watched spread between Italian and German 10-year bond yields (DE10IT10=RR) was little changed at 158bp after falling to its lowest since early April 2022 last week at 150bp.

ECB officials including Vice President Luis de Guindos and Finnish central bank chief Olli Rehn are due to speak later on Tuesday.

Title: Russian rouble steadies near 84 against dollar

June 20, 2023 03:28 AM ET

By: AnalysisWatch

The Russian ruble settled in a relatively narrow trading range near 84 against the dollar on Tuesday, taking into account a modest rise in oil prices and lingering geopolitical risks and anticipating an increase in foreign currency supply.

At 7:23 am EDT, the ruble was steady against the dollar at 84.11 (RUBUTSTN=MCX) and the EURRUB lost 0.1% against the euro, trading at 91.93. Against the yuan, it gained 0.1% to 11.72 (CNYRUBTOM=MCX).

The ruble depreciated by around 2% against the dollar last week, marked by volatile swings in the low liquidity market, prompting comments on the ruble exchange rate from senior officials who suggested that 80-90 per dollar was more appropriate.

The ruble should soon get a boost from the end-of-month tax season, when exporters typically transfer foreign exchange earnings to pay local obligations.

Brent crude BRN1!, the global benchmark for Russia's main exports, rose 0.4% to $76.40 a barrel.

The dollar-denominated RTS RTSI index fell 0.1% to 1,052.9 points. Russia's ruble-denominated MOEX IMOEX index rose 0.1% to 2,811.2 points, down slightly from a more than 14-month high reached on Monday.

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Title: EUR/USD consolidates above 1.0900, follows footprints of sideways USD Index

June 21, 2023 12:07 AM ET

By: AnalysisWatch

The EUR/USD currency pair is showing directionless performance above the round support level of 1.0900 in the Asian session. The major currency pair is tracking the US Dollar Index (DXY) sideways traces, which is expected to provide action following the Federal Reserve (Fed) Chairman Jerome Powell's statement.

Futures on the S&P500 index are posting nominal gains generated in Tokyo following Tuesday's bearish sentiment report. U.S. stocks posted negative returns on Tuesday as investors quickly closed out their positions after a long weekend.

The US dollar index turned sideways after retreating from the 102.80 resistance level ahead of Fed's Powell's statement. There is no doubt that Fed Powell has already issued hawkish guidance as labor market conditions remain tight and inflationary pressures are twice the desired rate. Investors are keen to see if Fed Powell sticks to the guidance already delivered, as the Street expects only one rate hike by the end of the year, while the central bank has directed two more rate hikes.

As for the Eurozone, the main contributors to persistently high inflation are food, alcohol and tobacco prices, while the other source is rising service prices. Eurozone inflation was recorded at 6.1% in the final reading, still three times the required 2% and supporting the need for further interest rate hikes.

The European Central Bank (ECB) had already raised interest rates to 4% in June and ECB President Christine Lagarde confirmed that a rate hike at the July meeting was appropriate.

Meanwhile, the ECB's Boris Vujcic said that when it comes to future policy moves, the central bank must weigh the risk of doing too much vs. too little, adding that a soft landing may not be possible.

Title: GBP/USD whipsaws around 1.2800 as UK inflation favors BoE hawks, focus on Fed Chair Powell

June 21, 2023 01:08 AM ET

By: AnalysisWatch

GBP/USD jumped 60 pips to break the 1.2800 level before retreating to 1.2760 as market players reassess UK inflation data due for release in London on Wednesday.

The UK Consumer Price Index (CPI) for May rose to 8.4% after market expectations, pushing the year-on-year figure to 8.7%. In doing so, the core CPI, which excludes volatile food and energy items, rose above analysts' estimates and previous readings by 6.8% y/y and recorded a 7.1% y/y increase in inflation figures for the month.

Given the upbeat UK inflation figures and the previously released strong UK employment report, the Bank of England (BoE) appears poised to announce another hike in its key interest rate on Thursday. Preparations for the same seem to be favouring buyers of the GBP/USD currency pair recently.

However, the US Dollar's ability to grind higher for the fourth consecutive day despite its recent inaction is challenging GBP/USD pair buyers, even as UK inflation favours the BoE hawks.

That said, the US Dollar Index (DXY) remains on the defensive around the 102.60 level, maintaining a four-day uptrend without indicating a keen interest in a move northwards. The latest US Dollar strength could be related to hawkish comments from Fed policymakers, especially nominees, and strong US housing data. In addition, geopolitical concerns around the US and China are weighing on sentiment and putting a floor under demand for the haven US dollar.

Against this backdrop, S&P500 index futures pause their retreat from the highest levels in 14 months earlier in the week and remain mostly idle near 4,436 at press time, while US 10-year Treasury yields pare Tuesday's losses to around 3.74% at the latest.

After witnessing the market's initial reaction to UK inflation data, traders on the GBP/USD pair should keep an eye on risk catalysts while waiting for Fed Chair Jerome Powell's semi-annual statement. In particular, Thursday's BoE interest rate decision will be key for cable traders to watch for clear directional cues.

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Title: USD/JPY climbs above 142.00 as US Dollar stays firm, Fed Powell’s testimony eyed

June 21, 2023 03:32 AM ET

By: AnalysisWatch

The USD/JPY pair quickly jumped above the 142.00 level as the US dollar remained firm in the European session. The US Dollar's strength stems from market participants' caution ahead of Federal Reserve (Fed) Chairman Jerome Powell's testimony.

Futures on the S&P500 index erased any losses seen in Asia and moved into positive territory, illustrating a decent recovery in market participants' risk appetite. Economists at HSBC believe that investors should brace for some consolidation as valuations have risen and the potential for further Fed tightening may reduce estimates of future earnings and valuations in the short term. However, we believe the Fed is nearing the end of its monetary tightening cycle, which should be bullish for US equities.

The US Dollar Index (DXY) is struggling to extend its recovery above the 102.60 level as the market has become confused about Jerome Powell's guidance. Investors are focusing intensely on whether Jerome Powell will stick with his previous guidance of raising interest rates further by 50 basis points (bps) this year or remain data dependent.

Meanwhile, the Japanese yen is set to dance to the tune of the Consumer Price Index (CPI) data for May, which will be released on Friday. According to the preliminary report, the annualized headline CPI is expected to accelerate to 0.1% from the previous release of 3.5%. Core inflation, which excludes the impact of oil and food prices, is estimated to rise to 4.4% from the previously published 4.1%.

The consistent ultra-dovish interest rate policy by the Bank of Japan (BoJ) seems to be doing its job. BoJ Governor Kazuo Ueda made it clear that for domestic inflation to rise, wages and domestic demand need to rise further.

Title: AUD/USD retreats sharply from 0.6800 ahead of Fed Powell’s testimony

June 21, 2023 02:48 AM ET

By: AnalysisWatch

The AUD/USD pair witnessed significant selling pressure during the London session after a short-term decline to near the round resistance level of 0.6800. The Aussie asset fell vertically to near 0.6760 as investors are apprehensive ahead of Federal Reserve (Fed) Chairman Jerome Powell's testimony and preliminary Australian S&P PMI (June) data scheduled for Thursday.

Futures on the S&P500 index pared some of the losses seen in Asia and displayed a slight recovery in market participants' risk appetite. The overall market sentiment remains cautious as a repeat of Jerome Powell's hawkish guidance would fuel fears of a recession in the United States.

The US Dollar Index (DXY) faces barricades in extending its recovery above the 102.65 level as the Street is divided on interest rate guidance. According to the CME Fedwatch tool, there is more than a 50% chance that the Fed will raise interest rates only once before the end of the year. US Treasury yields are showing a decent recovery. Yields on offered 10-year US Treasury bonds have jumped above 3.75%.

Meanwhile, newly nominated Fed Governor Lisa Cook and Vice Chair Philip Jefferson have clarified their intentions that their main goal is to slow down price pressures so that the economy can return to sustainable growth.

The Australian dollar showed a bumpy ride as the Reserve Bank of Australia (RBA) minutes proved less hawkish than expected. The RBA minutes suggested that policymakers were ambivalent about another interest rate hike in June or postponing it to July. However, May employment data released after the RBA monetary policy meeting confirmed further policy tightening.

Going forward, the focus will be on the preliminary Australian PMI data (June). The manufacturing PMI fell to 48.1 as expected from the previous published reading of 48.4. The services PMI is expected to fall sharply to 50.1 from the previous release of 52.1.

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