US dollar sees support ahead of tomorrows FOMC meeting

Good morning

The fact that there has been no US attacks on Iran for three days now is generally helping risk sentiment although stocks are quite mixed.  US markets were up yesterday, save for Nasdaq which showed losses, while overnight Asian markets were mixed with Japan’s Nikkei down almost 4% and South Korea stocks hitting circuit breakers as they fell over 10%, highlighting pressure on chip makers.  Oil prices remain relatively subdued as Trump made it clear he’d love to make a deal with Iran although added that he has no qualms about hitting them hard again if necessary. 

There is some focus on US, UK and EU bond yields which remain not far off recent highs which in turn are near multi-year highs.  The US dollar is a touch higher than yesterday, GBPUSD is 1.3300, EURUSD 1.1370 leaving GBPEUR stuck around 1.1700.  USDJPY is back up to the high-163’s helped by comments from Japan FinMin Katayama who said a weak yen does have merits, despite also saying once again that they are ready to act to counter speculative moves if necessary.

RBAs Bullock was speaking earlier this morning, saying that although members are willing to raise rates again they do see some signs of cooling already as had been anticipated and would rather see the full impact of recent rate rises before acting again.  This is probably enough to persuade the market that RBA will not raise rates next month, although a lot will come down to Aussie CPI data overnight.  A higher reading could put rate rises in August back on the agenda but anything lower may bring potential for short-term AUD weakness.  A rate rise later in the year, perhaps November or December, is still currently on the cards.

We have some US data on the calendar today but none of it is top-level stuff.  Aussie inflation overnight could be a market-mover.  Tomorrow brings the Fed rate announcement and although they are widely expected to keep rates unchanged, I have seen some looking for a surprise 25bps rise which would be a strong signal from Warsh that he is committed to battling inflation, and would also follow his ideas of surprising the markets rather than offering too much forward guidance.  Could be an interesting one.

Until then we’ll soak up more of the hot weather, tomorrow could be another scorcher, but spare a thought for those near Bordeaux and Madrid who are battling wildfires that have destroyed homes and caused over 300,000 evacuations.  Temperatures remain near 40°c, there is hope for some light rain on Friday but it is unlikely to be enough to fully douse the flames.   

However, as we often see in times of crisis, there are stories of people pulling together.  It is reported that many people who have not been evacuated have opened their doors to evacuees to offer them more comfort than the authorities are able to provide in makeshift shelters.  There is a lot of bad news in the press but there are still many good things that take place that can easily go unnoticed.  The world isn’t all bad.

Have a great day…

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