After a bit of a selloff during yesterday’s session following rather downbeat PMI readings out of the US in the morning, the United States Dollar has managed to stabilize today and is trading a touch higher against most majors than at yesterday’s close.
Overview
All three PMI readings – manufacturing, services, and composite- were below expectations, and the manufacturing release unexpectedly showed a small contraction on the preliminary reading for the month of April. This prompted about a third of a percent of a decline for USD across the board, but the Buck has largely recovered overnight and still continues to trade in familiar ranges.
Treasuries are continuing to trade under pressure as earnings season heats up for Q1 and traders move on a familiar path of adjustments amidst shifting expectations for the Federal Reserve. Yesterday’s PMI data did provide a notable counter to the current narrative that pushes the Fed much more toward a higher-for-longer approach, but markets clearly are not ready to ratchet up their easing expectations after what constitutes a rather large shift downward over the first quarter of this year. Tomorrow’s advance GDP reading for Q1 could prove to be yet another tipping point if data were to show substantially weaker growth for the January through March period than we saw through last year, however unlikely such a change may be. Markets currently expect that the US economy grew 2.5% last quarter, and a surprise in either direction promises to be quite the mover for the Dollar. If there is a more concrete signal that the superhot US economy may be cooling off, it’s possible that the USD bears could finally have something to hold onto, and the USD may snap its long winning streak.
What to Watch Today…
- US Q1 GDP, Thursday 8:30 AM
- Monex USA Online is always open.
JPY ⇓
Even after Finance Minister Shunichi Suzuki said Tuesday that “the environment is in place to intervene in the foreign exchange market if needed,” Japanese Yen has continued to slip against USD and this morning briefly crossed a key psychological level that many traders expected may prompt real intervention. The Bank of Japan, releasing its next policy decision on Friday, is quite unlikely to alter the Yen’s current trajectory, so the potential for intervention around that meeting remains fairly high.
GBP ⇑
Pound Sterling was a major beneficiary of Dollar weakness yesterday after the UK’s preliminary April PMI reading showed an economy growing at a faster pace than expected and leaving its recessionary territory behind. The Bank of England’s chief economist Huw Pill also spoke yesterday and poured cold water on expectations that the BoE may ease more than the Federal Reserve this year, stating that he is not yet convinced that the UK’s inflation rate is on track to return to 2%. Growing dissent amongst the ranks of voting members of the central bank places any timeline from the BoE into question.
