US Dollar Index climbs as US PCE stays elevated – Fed rate cuts unlikely

USD/JPY soars to 158.00, BoJ holds rates; Euro slumps nelow 1,0700

Summary: The Dollar Index, which gauges the value of the Greenback against a basket of 6 major currencies, climbed to 105.77 from 105.57 after the US PCE report showed price pressures remain elevated.

Against the Japanese Yen, the Dollar soared past 156 for the first time since 1990 after the Bank of Japan kept rates unchanged. The USD/JPY pair traded to 158.36 before easing to settle at 157.90 in New York.

The US Core Personal Expenditures Price Index rose to 2.7% annually, beating estimates at 2.6% and 2.5% previously. US March Personal Spending climbed 0.8%, beating forecasts at 0.6%.

Risk appetite improved despite the modest rise in the US PCE Index. Wall Street stocks rose marginally, driven by strong earnings from tech firms. The DOW gained to 38,270 (38,170).

US bond yields dipped at the close. The 10-year yield was last at 4.66%, down from Friday’s 4.70%. The 2-year US Treasury Yield dipped to 4.99% from 5.0%. Rival bond yields were also lower, maintaining the gap with US rates.

The Euro (EUR/USD) slid below 1.0700, settling at 1.0692 in late New York. Comments last week from Italian Central Bank Governor Panetta leaned toward the need for further rate cuts in Europe.

Sterling (GBP/USD) dipped to 1.2492 (1.2512) against the Greenback. Expectations that the Bank of England will start trimming rates from its June meeting weighed on the British currency.

The Antipodean currencies, however, held their own against the Greenback. The Australian Dollar (AUD/USD) dipped modesty 0.6527 from 0.6532 Friday. The Kiwi (NZD/USD) flexed its wings, finishing at 0.5950, up marginally from 0.5940 Friday.

Against the Asian and Emerging Market Currencies (USD/EMFX), the Dollar was mixed. The USD/CNH (Dollar-Offshore Chinese Yuan) edged up to 7.2680 from 7.2560. The USD/SGD pair (US Dollar-Singapore Dollar) settled at 1.3620, up marginally from 1.3595 Friday.

Other data released Friday saw Australia’s annual PPI climb to 4.3% from 4.1% previously. China’s March Industrial Profits slumped 4.3%, down from 10.2% previously.

The US Kansas Fed Manufacturing Index slid further in April to -13 from -9 previously. US March Personal Income (m/m) edged higher to 2.7% from 2.5% previously, beating estimates at 2.6%.  

USD/JPY – The Dollar soared against the Japanese Yen after the BOJ indicated that financial conditions will remain easy. The differential between the US 10-year yield (4.66%) and Japan’s 10-year JGB rate (0.88%) remained wide, lending support to the Greenback. The USD/JPY pair traded to 158.36 highs before easing to close at 157.87.

EUR/USD – The shared currency eased to 1.0692 against the US Dollar, modestly lower from Fridays open at 1.0730. The Euro traded to an overnight low at 1.0674 before rallying. Earlier, the EUR/USD pair hit an overnight high at 1.0753.

GBP/USD – Sterling dipped to 1.2492, marginally lower than Friday’s open at 1.2512. The British Pound remained under pressure against the Dollar. Bank of England policy makers continued to send mixed signals on UK inflation and the latest economic developments. In choppy trade, Sterling saw an overnight range of 1.2449-1.2541.

AUD/USD – The Aussie Dollar settled at 0.6527 against the Greenback, modestly lower than its Friday open at 0.6532. The AUD/USD pair was steady, trading to an overnight high at 0.6542, The overnight low recorded was 0.6517.

On the lookout

The week begins with a light economic calendar scheduled today. Japanese markets will be closed to celebrate a public holiday (Showa Day). However, the week picks up with the Federal Reserve’s rate decision (Thursday, 2 May at 4 am Sydney) and FOMC Statement followed by a press conference. There are no Asian economic data releases today. Germany kicks off Europe with its German April Inflation Rate (m/m f/c 0.5% from 0.4%; y/y f/c 2.3% from 2.3% - ACY Finlogix).

Spain releases it’s April CPI report (m/m no f/c, previous was 0.8%; y/y no f/c, previous was 3,2% - FX Street). The Eurozone releases its April Consumer Confidence (f/c -14.7 from -14.9 – ACY Finlogix), Eurozone April Eonomic Sentiment (f/c 96.9 from 96.3 – ACY Finlogix). The US rounds up today’s calendar with its US Dallas Fed April Manufacturing Index (f/c -11 from -14.4 – ACY Finlogix).

Trading perspective

The Dollar rallied against most of its Rivals supported by a rise in the US PCE Price Index. While price pressures remain elevated, interest rate and FX markets are betting that the Fed will wait for longer than previously anticipated before cutting interest rates. US Federal Reserve President Powell’s remarks to reporters following the release of the Fed’s rate decision (early Thursday morning in Sydney) will be closely watched. Leading economists are predicting Powell to make a hawkish pivot.

While that may be the case, US bond yields dipped at the New York close. The differential though with other global rates remains firmly in favor of the US Dollar. Expect the Dollar to maintain its advantage against its Rivals in Asia today.

USD/JPY – The focus once again lies on the Dollar-Yen pair. Japanese officials will continue to monitor FX markets despite the public holiday (Showa Day) today. This writer thought the 155 level would be the line-in-the-sand for the BOJ. It was not. The 160 Yen level makes more sense, and we could see Japan Inc show their hand as we approach it. Immediate resistance today lies at 158.30 (overnight high traded was 158.38). The next resistance level lies at 158.80 followed by 159.30 and 159.80. Immediate support can be found at 157.30, 156.80 and 156.30. Expect another roller coaster ride on this currency pair, likely range: 156.30-158.30.

EUR/USD – The shared currency dipped marginally to 1.0692 from 1.0730 Friday. Look for immediate support at 1.0670 followed by 1.0640. On the topside expect immediate resistance at 1.0720 followed by 1.0750. Look for consolidation in the Euro today, likely between 1.0680-1.0780. Trade the range, nice and wide.

AUD/USD – The Aussie Battler eased modestly to finish at 0.6527 from Friday’s opening at 0.6532. Immediate resistance lies at 0.6540 (overnight high traded was 0.6538). The next resistance level can be found at 0.6570 and 0.6600. On the downside, expect immediate support at 0.6490 followed by 0.6460. Look for the Aussie to consolidate first up in Asia today with a likely range of 0.6490-0.6550. Preference is to buy the Aussie on weakness.

GBP/USD – Sterling eased to 1.2492 from 1.2512 Friday. Look for immediate support on the British currency at 1.2470 and 1.2440 (overnight low traded was 1.2449). Immediate resistance can be found at 1.2540 (overnight high traded was 1.2539). The next resistance level can be found at 1.2570 followed by 1.2600. Look for Sterling to consolidate in a likely range today of 1.2450-1.2550. Trade the range, nice and wide.