Yesterday, we famous that the greenback wanted some constructive information surprises to regain firmer footing, and Might’s shopper confidence figures delivered. The index rebounded sharply to 98.0 from April’s 86, nicely above the 87 consensus, providing a tentative sign that the US-China deal – and, much more so, the fairness rebound – have helped reassure US customers. The Dallas Fed manufacturing index additionally shocked to the upside, including to the extra beneficial outlook for the greenback, ING’s FX analyst Francesco Pesole notes.
USD finds assist in sturdy shopper confidence information
“A extra conciliatory tone from President Trump in direction of the EU, coupled with stories of stress from some EU leaders for a fast commerce deal, additionally contributed to the squeeze in USD shorts. In the meantime, Japanese officers mentioned they purpose to achieve a take care of the US earlier than the G7 assembly between 15-17 June. Whereas an EU-US deal is unlikely to incorporate foreign money clauses (and would in all probability be USD constructive), there’s rising hypothesis that Japan could must conform to restrict JPY depreciation versus the greenback. If that’s the case, this might set off a sharply detrimental USD response as markets value within the threat of comparable FX clauses in different Asian commerce offers.”
“The spotlight of in the present day’s US calendar is the FOMC minutes from the 7 Might assembly. Markets will likely be on the lookout for clues on the place the Fed stands concerning the transitory nature of tariff-driven inflation. With two charge cuts priced in by year-end, the market consensus appears in step with Fed Chair Jay Powell’s cautious tone, although dangers stay tilted barely to the dovish facet. It’s price noting that the FOMC met earlier than the US-China deal, so members have been working off a mean US tariff charge of 23%, not the present 13% (our estimates).”
“Normally, markets are inclined to lean bearish towards the greenback. Extra constructive information surprises are wanted to rebuild confidence in US development, and deficit worries aren’t disappearing anytime quickly. When including the themes of de-dollarisation and Trump’s plans for a weaker greenback within the longer run, we nonetheless suppose the dollar rallies can fade from right here. We now have been flagging draw back dangers for the greenback within the close to time period. The upside shock in shopper confidence reduces these dangers, however we stay cautious about chasing the DXY above 100.”
