The US dollar is currently weakening against all major currencies. The buck is currently the weakest against the Australian dollar. As the dollar continues to look overbought, we expect a short-term pullback. Yesterday, the dollar changed directions several times during the day, but ultimately ended the day higher. Federal Reserve guidance was slightly weaker than expected, since the Fed described inflation as getting closer to its "symmetric" two percent objective. Use of the term "symmetric" suggests that the Fed will accept inflation rising above two percent for a limited period of time. While the dollar initially sold off following the Fed statement, it managed to find support later in the day.
In recent history, the US dollar has found significant support during US trading hours. This was particularly the case yesterday, as traders bought the currency throughout the day. Turning to trade news, the US is weighing curbs on Chinese telecom sales, in an escalation of the ongoing US-China trade spat. According to a Reuters story, the US is particularly concerned by ZTE and Huawei, given the risk of spying. Trump administration officials are in China this week in order to negotiate a trade deal. President Trump recently tweeted his desire to meet with Chinese President Xi in the near future. Our short-term and medium-term outlook on the dollar is bullish.
USD/JPY is down slightly today and currently trading above 109.60. EUR/USD is up and trading above 1.1980. The pound is up slightly, and GBP/USD is currently above 1.3590.
This is an important week for the US dollar economic calendar thanks to an upcoming Federal Reserve interest rate decision and nonfarm payroll figures. Core personal consumption expenditures for March (2%) met expectations. The Chicago purchasing manager’s index for April (57.6 vs. 57.9 expected), March pending home sales (-4.4% vs. -0.1% expected), and the Dallas Fed manufacturing business index for April (21.8 vs. 25 expected) all missed expectations. Markit manufacturing PMIs for April (56.5) met expectations while comparable ISM figures (57.3 vs. 58.3 expected) missed expectations. ISM prices paid (79.3 vs. 78 expected) were ahead of expectations. The Fed’s monetary policy statement suggested that the institution is comfortable with rates within an average range of two percent. ADP employment changes for April (204k vs 200k expected) were slightly ahead of expectations. Later today, we’ll see the trade balance (March), weekly initial jobless claims, Markit and ISM services PMIs (April), and March factory orders. We’ll also see Q1 nonfarm productivity and unit labor costs. On Friday, we’ll get nonfarm payrolls for April. We’ll also hear speeches from Fed speakers including Dudley, Williams, and Quarles. Last week, Q1 GDP growth was ahead of expectations.