US Dollar Mixed Ahead Consumer Confidence Data
The US dollar was mixed against its major trading partners early Tuesday — up versus the pound and yen, down versus the euro and Canadian dollar — ahead of a busy economic data schedule.
Consumer confidence data for July and job openings data for June are due followed by the Dallas Federal Reserve’s nonmanufacturing reading for July.
The CME FedWatch tool currently shows a 95.9% chance of no change in the current 5.25% to 5.50% target range for the federal funds rate being priced in and a 4.1% chance of a 25 basis point reduction to a range of 5% to 5.25%.
US dollar index (DXY) did well yesterday but could hand back those gains today were US data to emerge on the soft side or if the rest of Europe emulates France’s seemingly strong second-quarter GDP data.
A quick summary of foreign exchange activity heading into Tuesday showed that USDEUR rose to 1.0832 from 1.0823 at the Monday US close but was below a level of 1.0836 at the same time Monday morning.
Eurozone consumer confidence and business sentiment for July continued to indicate more pessimism than optimism in July while Eurozone gross domestic product rose more than expected in Q2, data released earlier Tuesday showed. The next European Central Bank meeting is scheduled for Sept. 12.
GBPUSD fell to 1.2854 from 1.2864 at the Monday US close but was above a level of 1.2844 at the same time Monday morning. There are no UK data on Tuesday’s schedule. The next Bank of England meeting is scheduled for Thursday when the BoE is expected to lower interest rates by 25 basis points.
USDJPY rose to 154.8084 from 154.0177 at the Monday US close and 153.6278 at the same time Monday morning. The Bank of Japan is expected to hold interest rates steady at its meeting later Tuesday, with an announcement expected later today.
Data released overnight showed that the Japanese unemployment rate declined modestly in June. USDCAD fell to 1.3849 from 1.3854 at the Monday US close but was above a level of 1.3841 at the same time Monday morning. There are no Canadian data on Tuesday’s schedule. The next Bank of Canada meeting is scheduled for Sept. 4.
The US dollar had a modest rally across the board yesterday but it was unclear why, ING FX analyst Chris Turner said in a note, saying it may have had something to do with month-end flows.
However, the bigger story for FX markets is whether this broad, cross-market correction seen around 10/12 July has run its course, Turner said.
Tomorrow’s event risks will have a big say in that. Analysts project a 15bp Bank of Japan rate hike, which could trigger more independent yen strength and extend the corrective environment.
However, a rate hike is far from a given and the vast majority of the local community in Japan think it is too early for another hike.
If that’s the case, USD/JPY could rally to say the 157 area and see investors jump back into the high yield/activity currencies which have taken such a beating in July, ING analyst Turner said.
The second event risk tomorrow is the FOMC meeting, which analysts think will be risk-bullish and dollar-negative as the Fed prepares the market for a September rate hike.
Also in focus is July consumer confidence data, which is expected to dip lower. Over recent weeks there has been growing momentum – aided by second-quarter earnings reports – that the US consumer is finally rolling over.
A softer confidence figure today will add to the view that the Fed will want to “sustain the expansion” with a September rate cut. US Slowdown Looms Amid Delicate Political, Geopolitical Uncertainty –Fitch
