Dollar Firms as Market Expects 50bps Rate Hike in June
The United States (U.S) dollar was firmer against its major trading partners early Wednesday, apart from a small decline against the Canadian dollar, ahead of a busy day of data and Federal Reserve events.
The highlights of the packed data schedule are the ISM’s manufacturing reading for May and the JOLTS data for April with weekly retail sales and mortgage application reports, monthly construction spending, and regional services conditions data from the Dallas Fed rounding out the day.
Comments last week turned slightly dovish in terms of how fast rates should be lifted later in the year after an initial surge, but an increase of 50 basis points remains the expected outcome for the June 14-15 meeting.
Fed Governor Christopher Waller said Monday that he would support keeping 50-basis point increases on the table until the pace of inflation has been brought down close to the Fed’s 2% inflation goal and that he would like to see the federal funds rate above the neutral rate of 2.5% by the end of the year.
A quick summary of foreign exchange activity heading into Wednesday shows that USD-CAD fell to 1.2645 from 1.2654 at the Tuesday US close and from 1.2678 at the same point Tuesday morning.
The highlight of the week is the Bank of Canada’s rate announcement where a further rate increase of 50 basis points is expected. Before that, Canadian manufacturing PMI data are scheduled for release.
USD-JPY rose to 129.4301 from 128.7028 at the Tuesday US close and 128.0123 at the same point Tuesday morning.
The Japanese PMI was revised slightly higher for May but remained below the April reading, data released overnight showed. The Bank of Japan is expected to maintain its ultra-low interest rate regime to boost growth further. READ: Kenya’s Apex Bank Hikes Key Policy Rate by 50bps
EUR-USD fell to 1.0718 from 1.0733 at the Tuesday US close but was up from 1.0695 at the same point Tuesday morning. EU manufacturing PMI was revised up slightly in May from the flash estimate but was still below the April reading, data released earlier Wednesday showed.
The manufacturing PMI improved in Germany and Spain but declined in Italy and France. Eurozone unemployment held steady in April.
European Central Bank President Christine Lagarde and ECB members Fabio Panetta and Philip Lane speak Wednesday as markets attempt to determine when the ECB will begin its tightening cycle, with expectations currently on the July meeting based on the rapid pace of inflation.
GBP-USD fell to 1.2582 from 1.2602 at the Tuesday US close and 1.2594 at the same point Tuesday morning. UK manufacturing PMI was unrevised from its flash estimate and below April’s reading. The Bank of England is expected to raise rates further at its June 16 meeting. # Dollar Firms as Market Expects 50bps Rate Hike in June
