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The dollar index (DXY00) today added to Monday’s sharp gains and is up by +0.43% to a 5-week high. The dollar has carryover support from Monday following the EU-US trade deal that is seen as favoring the US. Also, expectations for the Fed to keep interest rates unchanged at the end of Wednesday’s 2-day FOMC meeting are supportive of the dollar. The dollar extended its gains after the US Jun advance goods trade deficit unexpectedly shrank, a supportive factor for Q2 GDP, and after July consumer confidence rose more than expected.
The US Jun advance goods trade deficit unexpectedly shrank to -$86.0 billion versus expectations of a widening to -$98.0 billion, a positive factor for Q2 GDP.
The US May S&P CoreLogic composite-20 home price index rose +2.79% y/y, weaker than expectations of +2.91% and the smallest pace of increase in 1.75 years.
US Jun JOLTS job openings fell -275,000 to 7.437 million, weaker than expectations of 7.500 million.
The Conference Board US Jul consumer confidence index rose +2.0 to 97.2, stronger than expectations of 96.0.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 3% at the Tue/Wed FOMC meeting and 66% at the following meeting on September 16-17.
EUR/USD (^EURUSD) today added to Monday’s sharp losses and is down by -0.50% at a 5-week low. The euro is being weighed down by carryover pressure from Monday, when the announced EU-US trade deal was seen as favoring the US, with 15% tariffs imposed on most EU goods, which could pose headwinds to the Eurozone economy due to the higher tariffs. Also, the ECB’s Jun inflation expectations eased, a dovish factor for ECB policy and negative for the euro.
The ECB’s Jun 1-year inflation expectations eased to +2.6% from 2.8% in May. The ECB’s Jun 3-year inflation expectations were unchanged from May at +2.4%.
Swaps are pricing in a 15% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.
USD/JPY (^USDJPY) today is up by +0.12%. The yen weakened to a 1-week low against the dollar today as recent US trade deals have eased global trade tensions and reduced safe-haven demand for the yen. The yen continues to be undercut by concerns that the LDP’s loss of its majority in Japan’s upper house in the July 20 elections may lead to fiscal deterioration in Japan’s government finances, as the government boosts spending and implements tax cuts.
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