US Dollar: Stable tone as markets eye data and Warsh – MUFG

MUFG’s Derek Halpenny notes the US Dollar is broadly stable at the start of June as markets watch US-Iran negotiations and a busy US data calendar. He highlights that a confirmed deal could allow the Federal Reserve to look through the energy shock, but stronger inflation data would complicate this and could still weigh on the Dollar via a dovish Warsh-led Fed.

Dollar steadies into key US data

"The US dollar is broadly stable as we start a new month with no sign of the key breakthrough needed in order to have a formal ceasefire extension agreement reached."

"But as usual, the start of a new month brings with it a lot of the key economic data prints in the US. If a deal is announced and confirmed by President Trump there may well be a greater willingness amongst Fed officials to look through the energy price shock. Still, the extent in which the crude oil price declines further will be important as will the data."

"We still have to remember though that we are entering a new Federal Reserve period under new leadership, and we could well have a Chair who pushes a dovish interpretation. The PCE data last week showed the headline rate rising from 3.5% to 3.8% and the core from 3.2% to 3.3%. But Fed Chair Warsh in his nomination hearing cited trimmed mean measures as a good gauge of underlying inflation."

"Whatever way you look at it there are signs of a gradual improvement in the pace of payrolls growth that if confirmed in the data this week would certainly suggest continued caution over pushing for renewed rate cuts any time soon. The unemployment rate will also paint a similar picture measured by relative change over the last twelve months – the consensus unemployment rate for May is 4.3%, which would mean an unchanged level from 12mths ago. Over the previous 12mth period the unemployment rate increased 0.4ppt to 4.3%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)