USD Analysis – 14th of June

The USD remains a bullish currency in the longer-term, however the latest NFP report in addition to Brexit contagion risks, have seen bearish sentiment on the USD. Whether this USD sell-off continues or not will depend on incoming data and Fed’s members perspective of that data. At this stage, July 27 is looking like an appropriate date to raise rates, provided tier-one data does not disappoint in the the meantime. We expect the USD to trade mixed for the time being.

USD Analysis

Interest Rate

Fed Funds Target Rate: 0.50%

Last Change: December 16, 2015 (0.25%)

Expected Future Change: Fed fund futures price 4% chance of hike

Next Release: June 15


Inflation Target: 2%

Period: Year ending April 30

CPI: 1.1% Prior: 0.9%

Core CPI: 2.1% Prior: 2.2%

Next Release: June 16

PCE: 1.1% Prior: 0.8%

Core PCE: 1.6% Prior: 1.6%

Next Release: June 29


Month: May

Non-Farm Employment Change: 38,000 Expected: 164,000

Unemployment Rate: 4.7% Expected: 4.9%

Average Hourly Earnings: 0.2% Expected: 0.2%

Next Release: July 8


Period: Q1

Preliminary GDP: 0.8% Expectation: 0.9%

Next Release (Final Estimate GDP): June 28

The US dollar witnessed a severe sell-off in the wake of the June 3 NFP reading which saw only 38,000 jobs added, versus expectations of 164,000. This marks the weakest job growth since 2010. The dollar fell close to 230 pips against both the yen and the euro. Fed fund futures dropped from 30% to 4% chance of a hike on June 15. The huge miss on job gains has all but eliminated the chances of a hike in June, but July remains a distinct probability. Another reason that June is becoming an unlikely date for a hike is its proximity to the UK/EU referendum because the fallout of a ‘leave’ vote may produce uncertain effects across economies beyond the UK and Eurozone.

Yellen’s speech on May 27 was hawkish and saw upside in the USD as she announced that another rate increase is imminent: “Probably in the coming months such a move would be appropriate”. This upside followed-on from a rally that began with the latest FOMC Minutes, however all these moves have now been retraced thanks to the June 3 jobs report.

Inflation data for April was solid; Core CPI year-over-year, released May 17, remained above the Fed’s target of 2.0%, albeit declining from 2.3% in February to 2.1%. Core PCE – the Fed’s preferred measure of underlying inflation – sits at 1.6% y/y, up from 1.3% in late 2015. Core PCE printed at 0.2% for the month of April, while headline PCE ticked up to 1.1% y/y from 0.8%, thanks largely to the rally in the price of oil.

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