The US dollar is mixed today after strengthening sharply yesterday. Following the release of FOMC minutes yesterday, the dollar initially sold off. Once markets fully digested the message from the Federal Reserve, the dollar rose sharply as rate hike expectations increased. Looking at details, the minutes suggested that most policy makers had upgraded their views on growth and inflation for 2018. This raises the possibility that the Fed will pursue four rate hikes this year (against expectations for three hikes). Looking at other asset classes, bond yields rose while stocks and commodities traded lower. Today, the Japanese yen is rallying as global risk sentiment falls. In short, markets are "risk-off" thanks to rising fears of inflation and higher interest rates. Turning to economic data, PMI data had a limited impact on the currency. Composite PMI figures announced yesterday suggest a strong outlook for future growth. Following recent dollar strength, we will upgrade our short-term outlook to neutral later today. Our medium-term outlook on the US dollar remains bearish.
USD/JPY is down today and currently trading above 107.40. EUR/USD is down slightly and trading above 1.2270. The pound is down slightly, and GBP/USD is currently above 1.3890.
Looking at US economic data this week, there are quite a few Federal Reserve speakers. Composite Markit PMIs (55.9 vs. 54.4 expected) were ahead of estimates while existing home sales (5.4m vs. 5.6m expected) fell below estimates. FOMC minutes suggested an upgraded outlook for growth and inflation. Later today, we’ll see initial jobless claims. Federal Reserve members including Kashkari, Quarles and Bostic will also be speaking on that day. On Friday, Dudley (another voting member of the Fed) will deliver a speech. Last week, the consumer price index was ahead of consensus estimates.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.