· The U.S. dollar rose to a two-week high on Monday after strong economic data last week led investors to reassess whether the Federal Reserve will sound as dovish as expected at this week’s monetary policy meeting.
Broader currency markets were quiet, as traders hesitated to put on large positions before the Fed meeting, a meeting of European Central Bank policymakers in Portugal and the Bank of England’s interest rate decision on Thursday.
Expectations of an rate cut at the Fed’s June 18-19 meeting fell from 28.3% on Thursday to 21.7% after the retail data, according to CME Group’s FedWatch tool. However, bets for monetary easing at the July meeting remain at 85%.
The dollar index, which measures it against a basket of currencies, stood unchanged at 97.569, near a two-week high reached earlier in the session. The euro was little changed at $1.1209.
· Analysts see plenty of hurdles for the euro, too.
“Despite what should be a softer dollar environment this summer, there are enough EUR negatives out there (ECB easing, trade wars, Italy & Brexit to name a few) to prevent EUR/USD breaking out of a $1.10-$1.15 range this year,” ING analysts said in a note.
· With pretty much everyone convinced that the Fed is going to be cutting interest rates at some point this year, the central bank faces one rather pressing question: Why wait?
After all, the market already is pricing in at least reductions this year and probably three. Though the Federal Open Market Committee meets next week, there is little expectation of a move then.
Not moving next week essentially comes down to three factors, according to Fed watchers: The looming G-20 summit at which the U.S. and China, at least theoretically, could reach a trade agreement; a desire not to be seen as overly influenced by the financial markets and President Donald Trump’s hectoring; and the desire to avoid making December’s rate hike look like a policy mistake.
“They don’t want to be seen as cowing to any sort of pressure, be it political from the White House or from the market,” said Lindsey Piegza, chief economist at Stifel. “The Fed is going to look at the data, they’re going to look at what their models say. To them, it doesn’t matter what the markets say.”
Futures pricing Friday afternoon in the fed funds market showed a 21% chance of a move at the June 18-19 meeting, down from 30% earlier in the day on some stronger-than-expected economic data. The chance of a July cut remained at 85%, while the market was figuring a 61% probability for three moves in total by the end of the year.
· Representatives from the Chinese side said Thursday they think it’s likely that Xi will go to the G-20 meeting.
But in order to reach a trade deal, they emphasize, the U.S. must agree to certain conditions. These include the cancellation of all additional tariffs; following the direction of what was agreed at the G-20 meeting in Argentina last year; and abiding by terms which China considers equal.
· The Bank of Japan is expected to maintain its massive stimulus program on Thursday and signal its readiness to ramp up monetary support if growing risks such as the escalating U.S.-China trade war threaten the economy’s modest expansion.
At the two-day rate review ending on Thursday, the BOJ is widely expected to keep its short-term rate target at -0.1% and a pledge to guide the 10-year government bond yield around zero percent. The Fed meets this Tuesday and Wednesday.
The BOJ board is likely to maintain its view Japan’s economy continues to expand moderately as a trend, but debate whether its projection of a rebound in overseas growth later this year remains valid, the sources say.
· Hundreds of protesters remained in the streets of Hong Kong on Monday morning as the new work week began.
Cars were able to pass and most roads largely returned to normal, a day after a massive outpouring of anger over a controversial extradition bill that would allow fugitives to be sent to China for trial.
Even though Chief Executive Carrie Lam caved in to pressure and suspended the passage of the bill on Saturday, critics of the proposal are calling for her resignation and demanding that the legislation be withdrawn completely.
· Oil prices rose on Monday after U.S. Secretary of State Mike Pompeo said Washington will take all actions necessary to guarantee safe navigation in the Middle East, as tensions mounted following attacks on tankers last week.
Brent futures had climbed 14 cents to $62.15 a barrel by 0645 GMT after earlier rising about 0.4%. They gained 1.1% on Friday.
U.S. West Texas Intermediate (WTI) crude futures were up 3 cents at $52.54 a barrel, giving up some of their earlier gains. They rose 0.4% in the previous session.
· CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices remain range-bound above support in the 50.31-51.33 area. Breaking below it on a daily closing basis opens the door to retest a price floor in play since September 2016 in the 42.05-43.00 zone. Alternatively, a rebound above the upper layer of near-term resistance at 55.75 sets the stage to challenge the 57.24-88 region.
Reference: Reuters, CNBC, Bloomberg
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