Dollar drops to 3-month lows on Fed rate cut expectation and U.S-Iran tension

Market Review - 22/06/2019  05:22GMT  

Dollar drops to 3-month lows on Fed rate cut expectation and U.S-Iran tension

The greenback continued its recent losing streak on Friday and hit a 3-month low as market expectation of a Fed rate cut in July following Wednesday's FOMC dovish tilt and geopolitical tension in the Middle East prompted broad-based selling of usd. The single currency rose in Europe aafter upbeat French and German PMIs and hit a 3-month high.   
  
On the data front, Reuters reported U.S. home sales rose in May, boosted by lower interest rates for mortgages, giving a positive signal for the health of the U.S. economy.   The National Association of Realtors said on Friday existing home sales increased 2.5% to a seasonally adjusted annual rate of 5.34 million units last month. April's sales pace was revised slightly higher to 5.21 million from 5.19 million units.  
  
Versus the Japanese yen, although dollar initially fell to a fresh 5-1/2 month low at 107.06 in Asia on safe-haven yen buying due to U.S.-Iran tension, however, price found renewed buying there and rebounded after MOF's Asakawa expressed concerns on recent yen's strength. The pair later rebounded to 107.73 in New York morning due to short covering and also gains in U.S. Treasury yields before retreating.  
  
Reuters reported Japan will express concern if currency rates move rapidly in a way that deviates from economic fundamentals, the country's top currency diplomat said on Friday.  
Masatsugu Asakawa, vice finance minister for international affairs, said bond and currency markets have been reacting to heightening market expectations that the U.S. Federal Reserve will cut interest rates as early as next month.  
"If the Fed does cut rates in July because it feels doing so would be necessary to prevent a U.S. economic downturn, that's an appropriate monetary policy decision," Asakawa told a news conference.  "But if exchange rates are moving rapidly in a way that cannot be explained by economic fundamentals, Japan has no choice but to voice concern," he said.    
  
The single currency initially gained to 1.1309 in Asia and despite briefly falling to 1.1283 at European open, the pair jumped to 1.1314 and then later rose to 1.1334 in New York following upbeat German and France PMI data. Price later rallied to a 3-month peak of 1.1377.    
Reuters reported activity in Germany's services and manufacturing sector edged higher in June, a survey showed on Friday, suggesting that growth in Europe's biggest economy has stabilised at a moderate pace in the second quarter.   
IHS Markit's flash services Purchasing Managers' Index (PMI)rose slightly to 55.6, a two-month high, from 55.4 in May. The sector has been helping to support growth in Germany while manufacturing has suffered, partly due to trade disputes and Brexit uncertainty.  
  
Although the British pound recovered to 1.2724 in Asian morning, failure to penetrate Thursday's high at 1.2727 triggered profit-taking and cable dropped to session lows at 1.2643 in Europe on concern over possible no-deal Brexit if Boris Johnson becomes the new British Prime Minister before rising again in New York on cross-buying in sterling, price later hit 1.2748 at the close.  
  
Data to be released this week :  
  
Japan coincident index, leading economic index, Germany Ifo business climate, Ifo current conditions, Ifo expectations, and U.S. Chicago national activity index, Dallas Fed manufacturing business index on Monday.  
  
New Zealand imports, trade balance, exports, France business climate, UK CBI distributive trades, Canada wholesale trade, and U.S. building permits, redbook, monthly home price, CS home price, consumer confidence, new home sales, Richmond Fed manufacturing index on Tuesday.  
  
New Zealand RBNZ interest rate decision, Germany GfK consumer sentiment, France consumer confidence, Swiss investor sentiment, UK BBA mortgage approvals, and U.S. MBA mortgage application, durable goods, durables ex-transport, durables ex-defense, goods trade balance, wholesale inventories on Wednesday.  
  
Japan retail sales, New Zealand NBNZ business outlook, NBNZ own activity, Italy MFG business confidence, consumer confidence, trade balance, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence, Germany CPI, HICP, Canada average weekly earnings, and U.S. GDP, PCE, pending home sales, KC Fed manufacturing index on Thursday.  
  
UK Gfk consumer confidence, nationwide house price, GDP, current account, Japan Tokyo CPI, unemployment rate, industrial output, construction orders, housing starts, Germany import prices, France consumer spending, CPI, producer prices, Swiss KOF indicator, Italy CPI, producer prices, EU HICP, U.S. personal income, personal spending, PCE price index, Chicago PMI, University of Michigan sentiment, and Canada GDP, producer prices on Friday.