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Currency market today: U.S. GDP report may shift the balance of power on the currency market in favor of dollar buyers

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currency market news

What is happening on the currency market? Pretty strong U.S. economic growth data might turn the bullish market for risky assets, which are in good demand after yesterday’s meeting of the U.S. Federal Reserve. 

However, it could also be the case that the dollar will further sag against the euro and British pound, as the US economy may have shown modest growth in the second quarter of this year, interrupting the likelihood of consecutive quarterly contractions. Obviously, even if we do see growth, it will be quite weak, which will definitely raise fears of a possible further downturn in the foreign currency market.

Open currency market — what to expect? 

Economists expect U.S. gross domestic product to grow at an annualized rate of 0.4% in the 2nd quarter of 2022. On the face of it, that would seem to be an improvement after the 1.6% decline in GDP in the first quarter. However, a breakdown of GDP for the second quarter could illustrate a more worrisome decline in consumer demand, the main driver of economic growth. This will have a major impact on the currency market today. 

Whereas in the first quarter the slowdown was mainly due to growth in imports, and consumer spending was more moderate, things have changed; in the second quarter: the undoubted contribution to GDP growth will come from a reduction in the trade deficit, but consumer spending will probably shrink, which is pretty bad for the future prospects of the economy.

Clearly, because of the sharp rise in inflation, everyone expects consumer spending to shrink. Recent quarterly reports from major U.S. retailers such as Walmart Inc. and Target Corp. indicate serious concerns as consumers are already cutting spending, especially on high-priced items. 

Current currency market news and analysis

A decline in business investment, a weakening housing market amid rising interest rates and slower inventory growth will also have a negative impact on the pace of GDP growth in the second quarter. Recent data showed that the merchandise trade deficit narrowed more than expected in June, and inventories in both retail and wholesale stores rose significantly. 

Consumer spending, the main engine of the U.S. economy, will be the most important part of the report for many economists. Spending is projected to slow further to a 1.2% annualized rate, which will be the weakest growth rate for the year. Inflation-adjusted spending is likely to have declined in May from the previous month, and spending in June is not expected to be revised.

Currency market analysis: Impact of the U.S. GDP report

Experts say the economy may grow just enough to avoid an economic slowdown for two consecutive quarters, which is the common practical definition of a recession. Economists’ forecasts vary widely. About a third said GDP is down, including Bank of America Corp. and Deutsche Bank AG. 

Estimates range from a 2.1 percent drop to a 2 percent increase. The National Bureau of Economic Research has already made an official statement about the onset of the recession. Economists from the bureau define a recession as a significant decline in economic activity that spreads throughout the economy and lasts for more than a few months.

Even if the report shows GDP growth, fears that inflation will continue to rise and the Federal Reserve will raise interest rates to curb it will eventually lead the economy into recession. Yesterday, policymakers raised the key rate by 75 basis points, to 2.5%, at the end of a two-day committee meeting, and said they expect “steady further increases.” 

It is hard to say how all of these circumstances will affect the money market balance going forward, but clearly the GDP report will not go unnoticed.


BoJ’s announcement will weaken the yen – Julius Baer

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on – Following the decision by the Japanese monetary authority to maintain interest rates at 0.10%, having previously abandoned the ultra-loose policy with negative rates, the perception with the end of bond purchases later than expected is that the yen will weaken, Julius Baer pointed out in a note Friday. The projection is for a devaluation to 160 , from the current 157.46.

“Bond purchases will now be phased out cautiously and will only begin in July. The end of bond purchases later than expected and unchanged interest rates disappointed and weakened the yen,” pointed out the Swiss group.

David Kohl, chief economist at Julius Baer, ​​says details on how bond purchases will be gradually phased out are expected only at the next meeting, which would have disappointed investors.

“A tightening of policy at the next meeting is now very likely, but will most likely be implemented cautiously,” adds Kohl, who projects a ten basis point rise in rates in July.

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Dollar edges higher ahead of retail sales, speeches by Fed officials

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on – The U.S. dollar edged higher Tuesday ahead of key retail sales data and speeches by Federal Reserve officials, as traders looked for clues to better gauge the timing and pace of interest rate cuts.

At 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 105.125, but still lies below Friday’s 1 1/2-month high of 105.80..

Dollar sees volatile trading

The U.S. currency has seen volatile trading over the last week, weighed by cooling inflation readings but then supported by the Federal Reserve reducing the number of cuts projected this year to just one, from three in March.  

Investors are trying to work out when the Federal Reserve will start cutting interest rates, and thus will be studying the retail sales data for May, due later in the session.

Economists are expecting to have risen 0.3%, after they were unexpectedly flat in April.

Also of interest will be the speeches of a number of Fed officials during the week.

Philadelphia Fed President indicated on Monday that investors should probably only expect one interest rate cut this year.

“If all of it happens to be as forecasted, I think one rate cut would be appropriate by year’s end,” Harker said, after outlining his view that he sees slowing but above-trend economic growth, a modest rise in the unemployment rate, and a “long glide” back to target for inflation as his base case.

Euro stabilizes after politics-inspired losses

fell 0.1% to 1.0724, with the euro stabilizing to a degree after the previous week’s sharp losses in the wake of political turmoil following the rise of the far-right parties in the European Parliament elections, and the announcement of a snap election in France.

“The swing in option positioning and EUR/USD undervaluation suggest that, should markets scale back political risk premium, there would be a substantial room for rebound in the pair,” said analysts at ING, in a note.

“However, we doubt this may happen before the 30 June first round parliamentary vote in France, and the euro should remain a laggard in any USD-negative dynamics.”

The final reading of the May for the eurozone is due later in the session, with the annual figure expected to be confirmed at 2.6%, an increase from 2.4% the previous month. 

fell 0.2% to 1.2679, ahead of the release of May U.K. CPI on Wednesday and the Bank of England’s policy meeting the following day.

The is expected to come down to the bank’s 2% target for the first time in nearly three years, but underlying inflation is expected to remain above 3%.

The is likely to keep rates unchanged, with markets now pricing a roughly 40% chance of an August quarter point move and a 70% chance in September.

Aussie stable after RBA holds rates  

In Asia, traded 0.3% higher to 158.16, with the yen still weak after the kept rates steady last week and said it will only provide clear signals on its plans to begin reducing its bond purchases at its July meeting. 

traded largely unchanged at 7.2561, while slipped slightly to 0.6611, unfazed by the Reserve Bank of Australia’s as-expected to hold rates steady on Tuesday.


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Dollar slips against euro as European political jitters subside

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By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar slipped against the euro on Monday, as the common currency recovered from the more than one-month lows hit last week amid political turmoil in Europe.

The euro was up 0.25% to $1.07305 on Monday, after touching a six-week low of $1.066775 last week following news of a snap parliamentary election in France.

European markets have been under pressure after President Emmanuel Macron called for the snap election after his ruling centrist party was trounced by Marine Le Pen’s eurosceptic National Rally in the European Parliament elections.

Investors have been contemplating the risk of a budget crisis at the heart of the euro area, as far-right and leftist parties gain momentum ahead of the French election, pressuring Macron’s centrist administration.

Le Pen sought to allay some of those fears over the weekend, saying she would not seek Macron’s resignation and that she is “respectful of institutions,” in an interview with Le Figaro.

Even after the French financial markets endured a brutal sell-off late last week, European Central Bank policymakers have no plans to discuss emergency purchases of French bonds, five sources told Reuters.

“As French markets have begun to stabilize a bit since last week, the euro has responded with a slight touch of recovery,” Helen Given, FX trader at Monex USA in Washington, said.

But Given said the trend remained in favor of the dollar.

“If U.S. retail sales come in weaker than expected tomorrow, as most data for the U.S. has been in the last few sessions, we could see a more substantial turnaround, but the underlying dynamic for the pair is driven very heavily by geopolitics at the moment,” she said.

U.S. import prices fell for the first time in five months in May. The unexpectedly benign report from the Labor Department on Friday, combined with other recent data showing tame inflation readings, has helped keep a September interest rate cut by the Federal Reserve on the table.

The , which tracks the U.S. currency against a basket of six others, was 0.2% lower at 105.35.

The Fed published updated projections last week that showed the median forecast from all 19 U.S. central bankers was for a single interest rate cut this year.

Philadelphia Fed President Patrick Harker said on Monday that if his economic forecast plays out, the Federal Reserve would be able to cut its benchmark interest rate once this year.

The pound rose 0.15% to $1.2707 on Monday, though it remained close to the one-month low of $1.26575 touched in the previous session as traders await a policy meeting by the Bank of England this week.

Britain’s inflation pressures still appear too hot for the Bank of England to cut rates at its meeting on Thursday, with a majority of economists polled by Reuters forecasting the first cut would not come until Aug. 1.

The yen remained pinned near a 34-year low against the dollar after the Bank of Japan on Friday pushed cuts to bond buying amounts. The dollar was last up 0.2% to 157.73 yen.

Traders remain on watch for signs that Japanese authorities might intervene to prop up the yen.

“All the fundamentals for the pair are in the favor of USD at the moment, and though some volatility does remain, the general trajectory has been more steady than we saw in March and April,” Monex’s Given said.

© Reuters. FILE PHOTO: U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

“I’d expect to see rhetoric from currency officials heat up around the 160 mark, but as it stands now it would take a lot for BoJ officials to finance another intervention – at a point, it might no longer be worth it,” she said.

The Mexican peso slipped 0.4% on Monday on concerns about the fallout from judicial reforms proposed by President-elect Claudia Sheinbaum, while other currencies in Latin America weakened as U.S. Treasury yields rose on stronger-than-expected data.

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