The US dollar is currently stable. The buck is weakening against the Japanese yen, the Australian dollar and the Canadian dollar, while trading sideways against the pound and the euro. Yesterday, the currency was the weakest against the Japanese yen and the Australian dollar. As the dollar continues to look overbought, the currency is likely to continue weakening in the short-term.
Looking at upcoming economic data, currency traders will be watching nonfarm payrolls. Given widespread expectations for continued rate hikes, nonfarm payrolls are an important indicator for future monetary policy. Jobs figures have become particularly important as wage inflation rises to multi-year highs (currently above 3.5%). As late-cycle inflation accelerates, the US Federal Reserve is more likely to raise interest rates. With both growth and inflation on an accelerating trend, the "data dependent" Federal Reserve has all the supporting evidence it needs to keep raising rates. Our short-term and medium-term outlook on the dollar is bullish.
USD/JPY is down slightly today and currently trading above 109.0. EUR/USD is flat and trading above 1.1980. GBP/USD is flat, and currently above 1.3570.
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. The March trade balance (-$49b vs. -$50b expected), weekly initial jobless claims (211k vs. 225k expected), April Markit services PMIs (54.6 vs. 54.4 expected), and MoM March factory orders (1.6% vs. 1.4% expected) were ahead of expectations. Q1 nonfarm productivity (0.7% vs. 0.9% expected), unit labor costs (2.7% vs. 2.9% expected), and April ISM non-manufacturing PMIs (56.8 vs. 58.1 expected) missed expectations. Later today, 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.