Written by Hawkish Fed continues to fuel the dollar
The US dollar continued to gain against all but one of the other major currencies on Monday, with the only currency outperforming the greenback being the British pound. Today, the dollar is on the front foot against all.
Although US Vice President Vance said that there has been progress in the US-Iran talks, dollar traders remained focused on the Fed’s hawkish message and the upwardly adjusted implied rate path. With 9 out of 19 Fed officials expecting at least one quarter-point rate increase by the end of the year, investors are now fully penciling in a 25bps hike in September, while another one is nearly fully priced in by March 2027.
This week, the focus for dollar traders will be on today’s flash S&P Global PMIs for June and Thursday’s PCE inflation data, the Fed’s favorite inflation metrics, for May. Should today’s data point to improvement in business activity and Thursday’s PCE indices point to hot inflation, traders are likely to maintain their long positions, especially if the prices sub-indices of the PMIs suggest that inflation accelerated further in June.
UK PM Starmer resigns
The pound finished the day in the green, being the only major currency outperforming the dollar yesterday, as UK PM Keir Starmer announced his resignation. The currency has faced some selling pressure during the Asian trading hours on Monday following the initial rumors, but rebounded at the time of the announcement, perhaps on a “buy the fact” response.
What may also have contributed to the relief bounce was the easing of political uncertainty as support gathers around Andy Burnham, reducing fears of a prolonged leadership battle, while his commitment to existing fiscal constraints have reassured investors concerned about excessive borrowing.
Yen nears 40-year low against dollar
Over in Japan, the yen extended its slide against the almighty greenback, with dollar/yen hitting 161.92, remaining just shy of its 2024 high of 161.96, the break of which would send the pair to levels last seen in 1986.
Finance Minister Katayama warned for the umpteenth time on Monday that authorities remain prepared to respond at any time, while today, she reportedly held an online meeting with US Treasury Bessent. Although Katayama told reporters that they discussed global financial markets, she did not comment on whether FX intervention was part of the discussion.
Although the warnings from the finance ministry have increased lately, the yen has been relatively strong against other currencies recently, which means that the rally in dollar/yen is mainly a dollar-strength consequence rather than yen weakness. That’s maybe a reason why Japanese officials are allowing the pair to move well past the round figure of 160.00. Maybe they are waiting for a break above 162.00 before they consider pressing the intervention button.
Oil slips on peace-talks progress, Wall Street retreats on Fed hike bets
Oil prices turned south again after US Vice President Vance reported progress in peace talks held in Switzerland. According to reports, the US has removed decades-long sanctions to allow Iran to sell oil until August 21, with Iran committing on nuclear inspections and a full reopening of the Strait of Hormuz.
WTI crude oil appears ready to test the 73.40 support zone, the break of which could allow extensions towards pre-war levels.
On Wall Street, the Dow Jones eked out some gains, but the S&P 500 and the Nasdaq closed in the red, with the latter losing more than 1%. Stock futures are pointing to further acceleration in the slide, suggesting that investors are still revising present values of high-growth firms lower as expectations of Fed rate hikes continue to get bolstered.
by XM.com
