Dollar Weakens as Fed Rate Cut in July Seems Imminent
What’s been happening?
Pound Sterling – UK Markets
In the absence of any significant macroeconomic data releases and political developments, the British pound started the new week on a quiet note and closed the day virtually unchanged on a daily basis against both the dollar and the euro. Furthermore, investors seem to be staying on the sidelines while waiting for Bank of England Governor Carney to testify before the Treasury Committee on Wednesday as part of the Inflation Report Hearings.
US Dollar – US Markets
Pressured by the heightened odds of the Fed announcing a rate cut in the next FOMC meeting in July continue to weigh on the greenback. After losing nearly 1.5% last week, the US Dollar Index, which measures the dollar’s value against a basket of six major currencies, extended its slide and touched its lowest level in more than three months. According to the CME Group FedWatch Tool, markets are now pricing a 57.4% probability of a 25 basis points rate cut in July and a 42.6% chance of a 50 basis points rate cut.
Monday’s data from the U.S. revealed that the Federal Reserve Bank of Chicago’s National Activity Index improved slightly to -0.05 in May from -0.48 in May and came in better than the market expectation of -0.37 but couldn’t help the dollar recover its losses. Other data revealed that the manufacturing activity in Texas continued to decline in June with the Dallas Fed’s Manufacturing Index slumping to -12.1 in June from -5.3 in May.
Euro – European Markets
The shared currency ignored the dismal macroeconomic data from Germany on Monday and continued to outperform its major rivals, rising to its best level against the dollar since late March.
The disappointing data published by Germany’s Ifo Institute on Monday showed sentiment continued to deteriorate in June in the EU’s biggest economy. The headline Business Climate Index edged down to 97.4 from 97.9 in May and the Expectations Index, which indicates firms’ projections for the next six months, fell to 94.2 from 95.3. Finally, the Current Economic Assessment Index improved slightly to 100.8 from 100.6 in the same period. Commenting on the data, “The German economy is heading for the doldrums. Companies have grown increasingly pessimistic about the coming months,” said Ifo economists and added: “However, their assessment of the current business situation improved marginally.”
What’s coming up?
UK: The Confederation of British Industry will publish its Distributive Trades Survey on Tuesday.
US: The S&P Case/Shiller Home Price Index, Conference Board Consumer Confidence, new home sales, housing price index, and the Richmond Fed’s Manufacturing Survey will be featured in the U.S. economic docket on Tuesday. More importantly, FOMC Chairman Powell will be speaking at an event at 17 GMT.
EU: European Central Bank Governing Council members Coeure and De Guindos will be delivering speeches on Tuesday.