Daily Market Pulse
USD Bounces Off the Lows as Durable Goods, Inflation Rise Above Expectations5 minute read
The Greenback is bouncing off this morning's lows toward positive territory as the Dollar Index looks to hold on for its third consecutive winning week ahead of the Memorial Day long weekend. This morning's moves come from another heavy dose of US economic data while markets wait for a debt ceiling resolution from Washington.
On the data front, new orders for US durable goods exceeded expectations, surprisingly rising by 1.1% in April, driven by increased demand for transport equipment and machinery. Meanwhile, personal spending also saw a significant increase of 0.8%, with notable contributions from spending on services and goods. Finally, Core PCE prices, a measure of inflation that excludes food and energy, experienced a higher-than-expected monthly increase of 0.4%, resulting in an annual inflation rate of 4.7% - surpassing market expectations of a 3.9% rise.
There is still more US data today, with May consumer sentiment and inflation expectations set for release at 10:00 AM EST.
The Euro is clinging to modest gains this morning, although well off of the highs for the day, after the release of critical US data and comments from ECB Chief Economist Lane, Dutch central bank chief Knot, and Croatian central bank leader Vujcic.
Lane stated that falling energy prices would lead to a decrease in underlying Eurozone inflation, adding rapid wage growth is not causing excessive pressure on prices. He argued that the surge in inflation was driven by high energy costs, which is expected to reverse now that gas prices have returned to pre-war levels.
However, the timeline and extent of this reversal remain uncertain. Lane also emphasized that nominal wage growth is rising moderately on average, and real wages will still take until 2025 to reach their pre-pandemic levels.
Meanwhile, Knot expressed concerns that underlying inflation, particularly in the services sector, has not shown signs of abating. At the same time, Vujcic doubted the ECB's ability to bring inflation back to 2% within the next two years.
After four-straight days of losses, the Pound looks to rebound today after the release of UK and US data this morning. GBP/USD is up around 0.3% heading into the US session as the pair tries to avoid its third-consecutive losing week.
UK retail sales rebounded by 0.5% in April compared to March, exceeding expectations of just 0.3%. Non-food stores, including jewelry and sports equipment, showed a substantial recovery of 1%, while food stores and online retailers also improved. On a year-on-year basis, the headline figure showed a decline of 3% - higher than the 2.8% drop expected.
The Yen is down again today after suffering a 0.4% loss yesterday. JPY currently sits over 1.5% in the red for the week and appears destined for its third consecutive losing week as it continues to trade near November 2022 lows.
Earlier, Yen traders had another look at Japan's inflation data after the overnight release of Tokyo's inflation numbers. Tokyo's core inflation rate for May slowed to 3.2% year-on-year but still exceeded the BoJ's 2% target for the 12th straight month.
In addition, Japan's Leading Economic Index declined to 97.7, indicating cracks in the Japanese economy and raising concerns about a potential recession.
The Loonie is inching higher this morning after falling to four-week lows yesterday as it looks to cut into its weekly losses against the Dollar heading into the US long weekend.
The Loonie has found some support from oil prices this morning after Russian Deputy Prime Minister Novak challenged remarks from Saudi Energy Minister about the potential for OPEC+ output cuts in their next meeting. WTI currently trades around 1% higher heading into the US session.
After a light week on the economic calendar, next week looks more eventful for CAD traders, with Current Account data set for release on Tuesday, followed by GDP on Wednesday and Manufacturing PMI on Thursday.
MXN is up over 0.6% against the Dollar today on the heels of this morning's GDP release out of Mexico. Q1 GDP growth came in at 3.7% year-on-year, slightly below expectations of a 3.9% rise.
Meanwhile, the quarter-on-quarter figure matched expectations of 1% growth, just below the 1.1% growth in Q4.
The Peso has more work to do today to avoid its second-straight losing week against the Dollar. MXN still sits within striking distance of the seven-year highs it reached earlier this month as traders brace for a quiet economic calendar in Mexico next week.
After taking heavy losses yesterday, losing around 1.5% against the Greenback, the Brazilian Real is marginally higher this morning after a mix of data from the US and Brazil.
Brazil's current account switched from a surplus to a deficit of $1.68B in April, surpassing market expectations of a $0.25B deficit. Meanwhile, foreign direct investment in Brazil was just $3.31B in April, the lowest since December 2021 and well below market expectations.
As of April, foreign direct investment accounted for 4.17% of Brazil's GDP, less than in March but significantly higher from a year-on-year perspective.
The Yuan is up slightly this morning after hitting a fresh 6-month low yesterday.
The rebound comes amidst a modest pullback in the Dollar this morning, as well as a coordinated effort by state-backed banks in China to support the Yuan by dumping their US Dollar reserves in the onshore spot market. CNY has been under intense pressure lately and is on track for its fifth losing week out of the last six as markets continue to monitor the PBoC for any signs of loosening monetary policy in the near term.