The US dollar is currently stable. The buck is slightly higher against the British pound and lower against the Australian dollar. The currency is flat against all other major currencies. Yesterday, the dollar surged against all major currencies, while US Treasury bond yields were only slightly higher. As US growth continues to outperform its major peers, the dollar is strengthening in relative terms.
While recent US figures (such as Markit and ISM manufacturing PMIs) suggest that the outlook for US growth is positive, comparable figures in other countries is fairly week. Yesterday, the catalyst for the big move up in the US dollar was weak manufacturing PMIs from the United Kingdom. While the data typically doesn't have a big influence on the pound (as the UK's exports are dominated by services, not manufacturing), investors remain skittish on Europe's prospects. The pound cratered following the release, alongside the euro and other major currencies. The dollar strengthened in relative terms. Now that the US dollar is looking overbought, we expect the ongoing rally to take a breather. Our short-term and medium-term outlook on the dollar is bullish.
USD/JPY is flat today and currently trading above 109.70. EUR/USD is up slightly and trading above 1.20. The pound is down slightly, and GBP/USD is currently above 1.360.
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. Later today, the most important day, we’ll see the Fed’s monetary policy statement and interest rate decision. We’ll also see ADP employment changes for April. On Thursday, 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.
As the dollar rises, we are now bullish on the US dollar. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.