The U.S. dollar is mostly flat to start the week.
Overview
There is no economic data or Fed speakers on today’s docket so we must look back to geopolitical events over the weekend and forward to monetary policy events later in the week.
The meeting of the G7 countries was mostly successful, but tensions remain between the largest economies of the world. Leaders went out of their way to show their unity against China’s human rights violations and Russian hacking attempts. President Biden is in Brussels today for a NATO meeting before heading to Switzerland for a face-to-face with Russian President Putin on Wednesday. While the multiple meetings may not have a direct impact on the immediate direction of the dollar, fallout or policy shifts could change our longer-term view of the dollar.
The biggest risk event on this week’s docket is no doubt the Federal Reserve’s two-day meeting which starts tomorrow. The Fed is expected to keep current policy on hold and continue to maintain that recent inflation pressures are temporary. We do not expect the central bank to indicate a so-called “tapering” of purchases during this calendar year despite some policymakers chirping about a possible curb in the stimulus. We will also look at the Fed’s “dot plot” which is likely to show that members believe the first interest rate hikes will happen in 2023. Any deviation from widespread expectations will cause increased volatility, causing the dollar to rally if the Fed hawkishly surprises (unlikely, however.)
Markets in Australia, Hong Kong, and China are closed today for holidays.
What to Watch Today…
- No major economic events scheduled for today
CAD ⇓
The Canadian dollar slipped against the U.S. dollar to start the week ahead of data that is expected to show manufacturing sales declined in the month of April. The loonie’s modest weakness comes even as the price of oil continues to rally. Crude hit the highest price in 32 months as we get back to traveling and tensions in Iran remaining elevated before the country’s elections this week.
GBP ⇓
The British pound is under pressure this morning as the U.K. government is set to delay the lifting of pandemic restrictions amid a spike in the “delta” variant of the coronavirus. The end of social distancing rules was penciled in for June 21st but the rapid rise of the more contagious, more dangerous strain has put hospitals in a precarious situation. The financial burden a delayed reopening puts on the U.K. economy is obvious, but the length of the delays is what will ultimately dictate the direction of the sterling. The pound rose to start the year as the vaccine rollout outpaced many of its counterparts. The delay will call that rally into question and could cause the sterling to stumble.
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