US Dollar Falls as Fed Hikes Rates
The US dollar moved lower against its major trading partners as markets prepare themselves for extremely busy data that is highlighted by May retail sales data and the Federal Open Market Committee’s (FOMC) statement.
The greenback tracks lower as the market spotted 75 basis points rates hike by FOMC, which also sent the stock market shock waves on Wednesday and early on Thursday. Retail sales will be a key guidepost for the Fed to see how inflation is affecting consumer behaviour.
Recent consumer confidence data for June show that higher prices are having a significant impact on consumer attitudes, but the question is whether that will translate to lower spending. May retail sales are forecast to rise by 0.1% and increase by 0.7% excluding a decline in motor vehicle sales.
The Federal Open Market Committee was projected by many analysts to announce a 50-basis point rate increase, but markets and some analysts had also suggested that a larger 75-basis point increase would be more appropriate after last week’s stronger-than-expected consumer price report.
Other data scheduled for Wednesday include import and export prices, the Empire State manufacturing index, business inventories, NAHB’s measure of home builders’ sentiment and weekly petroleum stocks. Earlier Wednesday, the Mortgage Banks Association reported a rebound in applications for both homes refinance loans and new mortgages in the week ended June 10.
A quick summary of foreign exchange activity heading into Wednesday indicates that GBP-USD rose to 1.2119 from 1.199 at the Tuesday US close but held below the 1.2106 level at the same point Tuesday morning. There are no UK data scheduled for release on Wednesday ahead of the Bank of England’s meeting on Thursday. The BOE is expected to raise interest rates further.
EUR-USD rose to 1.0479 from 1.0411 at the Tuesday US close and 1.0444 at the same point Tuesday morning on reports that the European Central Bank met unexpectedly Wednesday to discuss market developments. EU industrial production partially rebounded in April from March, data released earlier Wednesday showed, while the trade gap widened sharply in the same month.
USD-JPY fell to 134.41 from 135.3545 at the Tuesday US close but remained slightly above the 134.4002 level at the same time Tuesday morning.
Japanese machinery orders unexpectedly surged to an 18-month high in April, data released overnight showed. The Bank of Japan meets Thursday and Friday and is expected to hold rates near zero while other central banks, including the Fed, accelerate monetary policy tightening.
USD-CAD slipped to 1.2921 from 1.2955 at the Tuesday US close and was slightly below the 1.2928 level at the same point Tuesday morning. Data on Canadian housing starts were also released. The Bank of Canada meets next on July 13 after a 50-basis point rate increase at the June meeting, with further monetary policy tightening expected.# US Dollar Falls as Fed Hikes Rates
