Macro Outlook

27 يونيو 2024

Dollar Strengthens Against Most Majors, Hits 38-Year High vs Yen

The U.S. dollar rose against most other major currencies on Wednesday, reaching a 38-year peak versus the yen. This movement was influenced by higher Treasury yields in anticipation of the upcoming PCE data release on Friday.

Market Overview

U.S. economic data revealed that new home sales for May fell short of forecasts, though an upward revision to the previous month's figures mitigated the impact. The market remained largely in a holding pattern as traders awaited the PCE inflation figures, which are expected to overshadow other economic reports, including initial jobless claims. Treasury yields increased by 5-7 basis points across the curve, with a strong five-year note auction signaling robust demand. Ten-year spreads of Bund, gilt, and JGB yields versus Treasuries generally moved in favor of the dollar.

Upcoming Economic Indicators

The market outlook is heavily dependent on the forthcoming PCE data and its potential impact on Federal Reserve policy expectations. Friday's PCE inflation figures are likely to be the main focus, with any significant deviation from forecasts having the potential to sway market sentiment. Additionally, initial jobless claims on Thursday will be closely monitored for any signs of labor market softening.

Broader Market Movements

In the broader market, the S&P 500 experienced a slight decline, with technology stocks attempting to stabilize after a recent selloff. WTI crude oil prices rose due to concerns about demand following an unexpected rise in U.S. crude stocks. Copper prices edged up after recovering from a two-month low, while gold prices eased due to the stronger dollar and rising Treasury yields.

Currency Summary

The dollar strengthened against most major currencies, with notable gains against the yen. Here's a detailed look at the key currency movements:

  • EUR/USD: The pair fell 0.27%, pressured by rising U.S. yields and the stronger dollar.
  • USD/JPY: The dollar surged 0.62% against the yen, reaching its highest level in 38 years as the yen weakened.
  • GBP/USD: The British pound dropped 0.44%, struggling against dollar strength.
  • AUD/USD: The Australian dollar managed a modest gain of 0.11%, buoyed by positive risk sentiment.

Overall, the dollar's gains were supported by rising Treasury yields and favorable yield differentials with other major currencies.

Currency Outlook

The currency outlook remains focused on the upcoming PCE data and its implications for Federal Reserve policy. A stronger-than-expected PCE reading could reinforce expectations for tighter monetary policy, supporting further dollar gains. Conversely, a weaker reading might temper these expectations and weigh on the dollar.

  • EUR/USD: Faces resistance from rising U.S. yields.
  • USD/JPY: Could see further gains if the dollar maintains its strength.
  • GBP/USD: May remain under pressure amid dollar strength.
  • AUD/USD: Performance will likely hinge on broader risk sentiment and commodity prices.

The overall market sentiment will be influenced by economic data releases and central bank communications in the coming days.

 

 

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