Fed’s Powell: Inflation increased, but remains transitory

Summary: Sterling surged back 1% to 1.3930 after falling to an April low (1.37864), leading FX higher against the Dollar. The British Pound reversed a 6-day slide which accelerated against the Greenback after the US Federal Reserve announced that it was preparing to reduce asset purchases last week. In a text from an upcoming testimony before a select committee, Fed Chair Jerome Powell said that inflation had increased but remains transitory. The Dollar Index (USD/DXY) faltered after hitting a 10-week high at 92.37 yesterday, sliding 0.44% lower to 91.85. EUR/USD advanced 0.58%, finishing at 1.1920. According to a Reuters report, ECB President Christine Lagarde said that the outlook for the Euro area economy is brightening, expecting economic activity to accelerate this quarter. The Australian Dollar staged a comeback after hitting a 2021 low yesterday at 0.7477, climbing 0.96% to 0.7542 at the New York close. Commodity prices steadied. Gold gained 1.1% to USD 1.783.00. Against the Yen, the Dollar was up marginally to 110.27 from 110.19 yesterday. The Greenback closed marginally lower against the Asian and Emerging Market currencies. USD/SGD closed at 1.3425 (1.3460) while USD/CNH (Dollar-Offshore Chinese Yuan) was last at 6.4650 (6.4645 yesterday). Wall Street stocks rebounded on the market’s risk-on stance. The DOW finished up 1.7% to 33,885 while the S&P 500 gained 1.41% to 4,225 (4,165). US Treasury yields reversed losses with the benchmark 10-year rate up 5 basis points to 1.49%. The two-year US bond yield closed at 0.26% from 0.25%.
Data released yesterday saw UK Rightmove House Price Index (June) ease to 0.8% from May’s 1.8%. Australia’s May Retail Sales slipped to 0.1% from 1.1%, missing forecasts at 0.4%. The US Chicago Fed Activity Index rose in May to 0.29 from 0.24 April.

(Source: Finlogix.com)

  • GBP/USD – Sterling staged a rebound off mid-April 2021 lows at 1.37844 to 1.3930 NY close. The British Pound had slumped from a high last week at 1.4185 on broad-based USD strength following the FOMC announcement. GBP/USD hit an overnight high at 1.39368.
  • AUD/USD – The Aussie staged its own comeback following 6 straight days of losses against the Greenback. After falling to 0.74771, the Aussie Battler rose to 0.75461 overnight high before easing to 0.7542 in late New York.
  • EUR/USD – The Euro rose 0.58% to 1.1920 after hitting an overnight low at 1.18475. Overall USD strength saw the Euro tumble from last week’s high at 1.4147. Germany’s 10-year Bund yield rose 3 basis points to -0.17%.
  • USD/JPY – rallied as risk appetite improved and US treasury yields climbed higher. The Dollar closed marginally higher at 110.27 from 110.20 yesterday. Overnight low traded was 109.715.

On the Lookout: With more Fed Speak in the next few days (including Jerome Powell’s upcoming testimony before the US House Select Committee – Sydney: 4 am 23 June), we can expect more volatility ahead. The economic calendar is still light today but picks up tomorrow and the rest of the week. New Zealand released its Westpac Consumer Sentiment Index a few minutes ago which saw a rise to 107.1 in Q2 from Q1’s 105.2 – Finlogix). The Kiwi did not react, sitting steady at its NY close of 0.6990. New Zealand will release its May Credit Card Spending data (11 am Sydney time, no forecasts, April’s was at 87.4%). The UK reports on its Public Sector Net Borrowing for May (f/c -GBP 26.1 billion from previous -GBP 31.7 billion – Finlogix). Switzerland follows with the release of its Q1 Current Account (previous was -CHF 3 billion). UK May CBI Industrial Order Expectations follow (f/c 16 from April’s 17). Euro-area Flash Consumer Confidence for June is forecast at -3 from -5.1 in May (Finlogix). The US rounds up the day’s reports with its June Richmond Fed Manufacturing Index (April’s was 18.0), May Existing Home Sales (m/m f/c 5.72 million from previous 5.85 million – Finlogix), US Fed Treasury Purchases TIPS (forecast at USD 2.025 billion – Finlogix).

Trading Perspective: The Dollar’s strong rally in the past 3 days paused and began a correction yesterday amidst improved risk appetite. Stocks and commodities rose. Fed officials once again sought to play down the latest inflation rise as transitory. Overnight US treasury yields reversed their slide lower with the 10-year up to 1.49% (1.44%). Other global bond yields were steady. This should keep the Greenback supported against its rivals. Traders will focus on upcoming Fed speak, including Jerome Powell’s testimony to the US House Select Subcommittee (4 am Sydney time 23 June). While the Greenback has room to climb further, its not going to be in a straight line from here on in.

  • GBP/USD – Overnight the British currency lead the currencies higher against the Greenback. Sterling rebounded just over 1% to a 1.3930 finish after hitting an overnight and mid-April low at 1.37844. GBP/USD hit an overnight peak at 1.39368, easing to its 1.3930 close. GBP/USD has immediate resistance at 1.3950 followed by 1.3980 and 1.4010. Immediate support can be found at 1.3890 and 1.3860. Looking at a likely range today of 1.3900-1.3970. There’s money to be made trading both sides of a range without being too opinionated.
  • AUD/USD – The Aussie Battler was KO’d lower to 0.7477 overnight before staging a comeback to 0.7542 in late New York. Weaker-than-forecast Australian Retail Sales data released yesterday weighed on the Aussie. AUD/USD has immediate resistance at 0.7560 followed by 0.7600. Immediate support can be found at 0.7515 and 0.7475. The Aussie is not out of the woods yet and a stronger Greenback will pressurise the Battler. Look to trade a likely 0.7500-0.7560 range today. Looking to trade this range today. Preference is to buy on any weakness today.
  • EUR/USD – The shared currency slid to an overnight low at 1.18475 before reversing its decent, rallying to finish at 1.1920 in New York. EUR/USD currently trades at 1.1917. Immediate resistance lies at 1.1930 followed by 1.1960. Immediate support can be found at 1.1890 followed by 1.1860 and 1.1830. European and Eurozone Manufacturing and Services PMI’s are released tomorrow which should set the stage for the shared currency’s next big move. Meantime looking to trade a likely 1.1880-1.1950 range today.
  • USD/JPY – The Dollar edged higher against the Yen finishing with marginal gains to 110.27 from yesterday’s 110.20 close. The risk-on sentiment and higher US 10-year bond yield were supportive of USD/JPY. Immediate resistance lies at 110.40 (overnight high traded was 110.333) followed by 110.80. Immediate support can be found at 110.00 and 109.70 (overnight low 109.715). Expect USD/JPY to trade a likely 109.85-110.55 range today.

Have a good trading day ahead all. Happy Tuesday.

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