Market News Foreign exchange trading reminder: The US index performed the worst in a year in May, but the 50-day moving average was supported, and the European silver was expected to raise interest rates to curb inflation
Foreign exchange trading reminder: The US index performed the worst in a year in May, but the 50-day moving average was supported, and the European silver was expected to raise interest rates to curb inflation
At the beginning of the Asian market on June 1, the US dollar index is now at 101.78, with strong support near the 50 moving average. While retreating from session highs, the dollar rose against most G10 currencies on Tuesday, reversing some of its recent losses, as Biden announced he would respect the Federal Reserve's independence in fighting inflation. The euro remained weak for now, as data on Tuesday showed euro zone inflation hit a record high in May, adding to pressure on the European Central Bank, which seeks to curb high prices by gradually raising interest rates in the coming months as it fends off a recession.
2022-06-01
8950
At the beginning of the Asian market on June 1, the US dollar index is now at 101.78, with strong support near the 50 moving average. While retreating from session highs, the dollar rose against most G10 currencies on Tuesday, reversing some of its recent losses, as Biden announced he would respect the Federal Reserve's independence in fighting inflation.
The dollar index, which tracks the greenback against six other major currencies, was up 0.3% at 101.76. The U.S. dollar index, which is up about 6.4 percent this year, fell 1.4 percent in May, its biggest monthly drop in a year.
Societe Generale analyst Kit Juckes said: "The more the market pays attention to inflation data and central bank actions, the more likely it is that risk appetite will fluctuate in early summer and the more likely the dollar will be stronger."
Fed Governor Christopher Waller said he wants to continue raising rates at a 0.5 percentage point pace until inflation is "closer to our 2 percent goal."
In a rare meeting with Fed Chairman Jerome Powell, U.S. President Joe Biden emphasized that while his priority is to contain price increases, that is largely the Fed's mandate.
U.S. President Joe Biden told Federal Reserve Chairman Jerome Powell on Tuesday that he would give the central bank space and independence to address inflation as it sees fit, according to a senior aide.
The dollar's rebound on Tuesday suggested the dollar index was better supported near its 50-day moving average, which the greenback has been testing for the past few sessions, Shaun Osborne, chief foreign exchange strategist at Scotiabank, said in a note.
"We think the dollar is unlikely to rise significantly and still believe that price action reflects the early stages of a broad reversal of the recent dollar bullish trend," Osborne said.
The dollar rose as much as 1% against the yen to 128.89 yen, its highest level in about two weeks. Brad Bechtel, global head of foreign exchange at Jefferies, said: “With U.S. bond yields rising again and dollar demand picking up, (USD/JPY) is set to rise towards 130.00 yen.”
Dane Cekov of Nordea Bank said: “The NOK has recovered as sentiment improves. The market could be volatile going forward, which is bad news for NOK, even if oil prices remain high. Norges Bank reduces selling NOK should help to some extent."
Inflation in the euro zone accelerated to its highest level on record, beating forecasts, though Monday's data from member states and regions gave the market a sense of what to expect.
The euro remained weak for now after data on Tuesday showed euro zone inflation hit a record high in May, adding to pressure on the European Central Bank, which is looking to gradually raise interest rates in the coming months to curb high prices while fending off a recession.
Inflation in the 19 euro zone countries accelerated to 8.1% in May from 7.4% in April, beating expectations for a 7.7% increase, as price gains continued to widen, suggesting energy is no longer driving the headline data.
European Union leaders agreed in principle on Monday to halt most oil imports from Russia by the end of the year, sending oil prices higher and providing some support for commodity currencies.
USD/CAD touched as low as 1.2628, the lowest since April 25. The Bank of Canada will meet on Wednesday, and all 30 analysts polled by Reuters expect the central bank to raise interest rates by 50 basis points to 1.50%.
1. Barclays looks forward to the Bank of Canada interest rate decision: it is expected to raise interest rates by 50 basis points, and said it will continue to raise interest rates, maintaining a constructive medium-term view on the Canadian dollar
The Bank of Canada is expected to raise rates by 50 basis points to 1.50%. The announcement is expected to make clear the need for continued interest rate hikes with the economy running in excess of demand and inflation persistently well above target. A surprise 75 basis point rate hike is unlikely as officials at the bank have not explicitly backed the idea of a larger rate hike, while renewed global growth concerns have reduced the urgency for a tougher stance from core central banks. The bank is expected to maintain the pace of 50 basis points of rate hikes in July. While the bar for a hawkish surprise rate hike to lift the CAD is high, we maintain a constructive medium-term view on the CAD and continue to expect a gradual decline in the US and Canada
2. High Ridge Futures: The dollar is stable
David Meger, head of metals trading at High Ridge Futures: The market is expecting that Biden may push the Fed to do more to combat inflationary pressures, and as a result we see the dollar is fairly stable and the gold market is slightly stressed
3. Goldman Sachs: The imminent exit of the ECB from negative rates will support the euro
Goldman Sachs said the imminent exit of the ECB from negative interest rates will have a materially positive impact on fixed income flows as the incentive to hold euro zone bonds improves, in support the euro for a while
4. Bert Colijn, senior euro zone economist at ING: EU oil sanctions will delay the fall in euro zone inflation
High inflation in the euro zone continues amid persistent volatility in energy markets due to sanctions on Russia and soaring food prices. Core inflation in the euro zone has picked up, with headline inflation hitting a record high of 8.1% in May. Oil prices continued to rise in May, while EU sanctions on Russian seaborne oil announced on Monday intensified expectations that oil prices will remain high, which will delay the decline in headline inflation in the euro zone, especially as food and core inflation are also on the rise.
5. Oxford Economics: Eurozone inflation is about to peak, but upside risks remain
Eurozone inflation should peak in the next two to three months, but EU ban on Russian oil brings Further price pressure, which could keep inflation at higher levels for longer. Euro zone inflation is expected to gradually decline in the second half of the year, with a more pronounced decline next year, when energy prices are expected to fall from current levels. Headline and core inflation are expected to fall below 2% in 2023, said Fabiani, assistant economist at Oxford Economics.
6. Rabobank: Russian oil embargo could push euro zone into recession
The ban on Russian seaborne oil, coupled with already high inflation and huge supply chain pressures, will push the euro zone into recession. Rabobank expects the euro zone economy to enter a recession in late 2022 or early 2023. Affected by the tail-raising factor, the euro area economy is expected to grow by 2.2% in 2022 and shrink by 0.1% in 2023. The ban will not lead to lasting energy shortages, but it will take time to displace Russian oil imports and prices will almost certainly move higher. Rabobank adds that euro zone growth forecasts are affected by uncertainty
The dollar index, which tracks the greenback against six other major currencies, was up 0.3% at 101.76. The U.S. dollar index, which is up about 6.4 percent this year, fell 1.4 percent in May, its biggest monthly drop in a year.
Societe Generale analyst Kit Juckes said: "The more the market pays attention to inflation data and central bank actions, the more likely it is that risk appetite will fluctuate in early summer and the more likely the dollar will be stronger."
Fed Governor Christopher Waller said he wants to continue raising rates at a 0.5 percentage point pace until inflation is "closer to our 2 percent goal."
In a rare meeting with Fed Chairman Jerome Powell, U.S. President Joe Biden emphasized that while his priority is to contain price increases, that is largely the Fed's mandate.
U.S. President Joe Biden told Federal Reserve Chairman Jerome Powell on Tuesday that he would give the central bank space and independence to address inflation as it sees fit, according to a senior aide.
The dollar's rebound on Tuesday suggested the dollar index was better supported near its 50-day moving average, which the greenback has been testing for the past few sessions, Shaun Osborne, chief foreign exchange strategist at Scotiabank, said in a note.
"We think the dollar is unlikely to rise significantly and still believe that price action reflects the early stages of a broad reversal of the recent dollar bullish trend," Osborne said.
The dollar rose as much as 1% against the yen to 128.89 yen, its highest level in about two weeks. Brad Bechtel, global head of foreign exchange at Jefferies, said: “With U.S. bond yields rising again and dollar demand picking up, (USD/JPY) is set to rise towards 130.00 yen.”
Dane Cekov of Nordea Bank said: “The NOK has recovered as sentiment improves. The market could be volatile going forward, which is bad news for NOK, even if oil prices remain high. Norges Bank reduces selling NOK should help to some extent."
Inflation in the euro zone accelerated to its highest level on record, beating forecasts, though Monday's data from member states and regions gave the market a sense of what to expect.
The euro remained weak for now after data on Tuesday showed euro zone inflation hit a record high in May, adding to pressure on the European Central Bank, which is looking to gradually raise interest rates in the coming months to curb high prices while fending off a recession.
Inflation in the 19 euro zone countries accelerated to 8.1% in May from 7.4% in April, beating expectations for a 7.7% increase, as price gains continued to widen, suggesting energy is no longer driving the headline data.
European Union leaders agreed in principle on Monday to halt most oil imports from Russia by the end of the year, sending oil prices higher and providing some support for commodity currencies.
USD/CAD touched as low as 1.2628, the lowest since April 25. The Bank of Canada will meet on Wednesday, and all 30 analysts polled by Reuters expect the central bank to raise interest rates by 50 basis points to 1.50%.
Wednesday Preview
Institutional view
1. Barclays looks forward to the Bank of Canada interest rate decision: it is expected to raise interest rates by 50 basis points, and said it will continue to raise interest rates, maintaining a constructive medium-term view on the Canadian dollar
The Bank of Canada is expected to raise rates by 50 basis points to 1.50%. The announcement is expected to make clear the need for continued interest rate hikes with the economy running in excess of demand and inflation persistently well above target. A surprise 75 basis point rate hike is unlikely as officials at the bank have not explicitly backed the idea of a larger rate hike, while renewed global growth concerns have reduced the urgency for a tougher stance from core central banks. The bank is expected to maintain the pace of 50 basis points of rate hikes in July. While the bar for a hawkish surprise rate hike to lift the CAD is high, we maintain a constructive medium-term view on the CAD and continue to expect a gradual decline in the US and Canada
2. High Ridge Futures: The dollar is stable
David Meger, head of metals trading at High Ridge Futures: The market is expecting that Biden may push the Fed to do more to combat inflationary pressures, and as a result we see the dollar is fairly stable and the gold market is slightly stressed
3. Goldman Sachs: The imminent exit of the ECB from negative rates will support the euro
Goldman Sachs said the imminent exit of the ECB from negative interest rates will have a materially positive impact on fixed income flows as the incentive to hold euro zone bonds improves, in support the euro for a while
4. Bert Colijn, senior euro zone economist at ING: EU oil sanctions will delay the fall in euro zone inflation
High inflation in the euro zone continues amid persistent volatility in energy markets due to sanctions on Russia and soaring food prices. Core inflation in the euro zone has picked up, with headline inflation hitting a record high of 8.1% in May. Oil prices continued to rise in May, while EU sanctions on Russian seaborne oil announced on Monday intensified expectations that oil prices will remain high, which will delay the decline in headline inflation in the euro zone, especially as food and core inflation are also on the rise.
5. Oxford Economics: Eurozone inflation is about to peak, but upside risks remain
Eurozone inflation should peak in the next two to three months, but EU ban on Russian oil brings Further price pressure, which could keep inflation at higher levels for longer. Euro zone inflation is expected to gradually decline in the second half of the year, with a more pronounced decline next year, when energy prices are expected to fall from current levels. Headline and core inflation are expected to fall below 2% in 2023, said Fabiani, assistant economist at Oxford Economics.
6. Rabobank: Russian oil embargo could push euro zone into recession
The ban on Russian seaborne oil, coupled with already high inflation and huge supply chain pressures, will push the euro zone into recession. Rabobank expects the euro zone economy to enter a recession in late 2022 or early 2023. Affected by the tail-raising factor, the euro area economy is expected to grow by 2.2% in 2022 and shrink by 0.1% in 2023. The ban will not lead to lasting energy shortages, but it will take time to displace Russian oil imports and prices will almost certainly move higher. Rabobank adds that euro zone growth forecasts are affected by uncertainty
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