Forex today: Dollar was broadly weaker on Fed' cut expectations

  • The U.S. Dollar was broadly weaker on Friday, ignoring inflation numbers.
  • While Japan is out on holiday, all eyes turn to the Chinese data dump in Asia today.

Forex on Friday ended with little bang for the buck with the Dollar broadly weaker again on the notion that the Federal Reserve is entering a new easing cycle, reverberated by Fed' officials while inflationary data beating expectations during the week was brushed aside. 

During the week, the U.S. Consumer Price Index for June came in a touch stronger than market expectations. The headline printed at 0.1% m/m and 1.6% y/y, and core came in at 0.3% m/m and 2.1% y/y. Gains were broad-based across the components. Then, the US June PPI was firmer than expected (+0.3%m/m and +2.3%y/y ex-food and energy, est. +0.2%m/m, +2.1%y/y) - another sign that the US is not at risk of a deflationary slide. The data are hot on the heels of Fed Chair Powell’s testimony to Congress in the week where he expressed concerns that weak inflation will be even more persistent and be a drag on inflation expectations. 

"While data flow out of the US continues to pour the occasional bucket of cold water on US rate cut expectations, worrying signs over upstream inflation pressures remain. Markets continue to fully price in a 25bp cut at the July FOMC with a second cut priced in at about 50%," analysts at ANZ Bank argued. 

Instead, and in the same vein, markets on Friday chose to focus more on what Fed speakers had to say, such as Chicago Fed president Evans (usually dovish, voter this year). He was arguing that the weak macro picture in the global economy warranted a rate cut.  Richmond Fed president Barkin (non-voter, recently a touch hawkish) also cautioned around the downside risks to the US economy - Markets continued to price 30bp of easing at the July meeting.

As for yields, the US 2-year treasury yields were moving sideways between 1.84% and 1.88% while the 10-year yields between 2.10% and 2.15% which was a one-month high. On the currency front.

  • EUR/USD ranged sideways between 1.1240 and 1.1275. 
  • USD/JPY dropped from 108.50 to 107.85. 
  • AUD/USD climbed from 0.6990 to 0.7025. 
  • NZD moved higher from 0.6680 to 0.6699.
  • AUD/NZD moved up from 1.0470 to 1.0493.
  • CAD moved to the best levels since October 2018 to 1.3020, USD/CASD.

Key notes from Wall Street:

Wall Street sees record highs, S&P cracks the 3000 mark, DJIA adds 244 points

Key events ahead:

Analysts at Westpac noted that the calendar focus in Asia-Pacific trade today will be China’s Q2 GDP and June activity data (12pm Syd/10am local).

"GDP will be the main headline-driver as usual but it also has the least potential to surprise, having printed within 0.1ppt of the median Bloomberg forecast every quarter since June 2015. Consensus is 6.2%yr, which also matches Chinese press reports Friday. This is a further gradual softening after 6.4%yr in both Q4 18 and Q1 19."

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