FX UPDATE 03/06/2024
The Dollar remained steady at the time of writing on Monday as investors embraced the notion that US inflation may have moderated sufficiently for the Federal Reserve to consider rate cuts this year. The greenback registered its first monthly decline of 2024 in May, impacted by shifting forecasts as to when the Fed could slash rates and by how much. As it stands, markets are pricing in 37 basis points of cuts this year from the US central bank, Reuters reports. According to data published on Friday, a measure of consumer inflation recorded a modest rise in April, with price pressures staying above the 2% target set by the central bank. Traders are now estimating a roughly 60% probability of a rate cut in September, compared to 49% prior to the report. “If the Fed can cut because they can, rather than because they have to stave off a recession, the markets should do well,” stated?chief economist at Annex Wealth Management?Brian Jacobsen. “The market will get impatient with the Fed's patience since the growth data suggests the Fed is waiting too long to recalibrate rates.” The Dollar index, measuring the currency against six peers, rose 0.1% at 104.67 at the time of writing. Last month the index declined 1.56% but is up 3% for the year so far.
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Elsewhere, Sterling edged down 0.2% to $1.27215, whilst the Euro was marginally lower at $1.0844 ahead of Thursday’s European Central Bank (ECB) policy meeting,?where it is also almost certain to reduce rates. Traders will closely monitor comments from ECB officials, as well as economic projections, to gauge whether the central bank will implement additional cuts following Thursday's decision. This assessment comes in light of recent data indicating an increase in eurozone inflation last month. Markets are now pricing in 57 basis points of cuts from the ECB in 2024.
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Moving to India, the Rupee, which has been the top-performing Asian currency this year, was last seen at 83.035 per Dollar. This movement coincided with exit polls suggesting a significant mandate and a rare third term for Prime Minister Narendra Modi.
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In Japan, it was unveiled at the end of last week that monetary authorities spent 9.79 trillion Yen on foreign exchange market interventions to bolster the Yen over the last month. As the worst-performing major currency against the dollar this year, the Japanese currency lost 10% in value. At the time of writing, the Yen was little changed against the greenback at 157.18, close to the four-week low of 157.715 hit last week.
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