Today’s European session was lacking major economic releases and as a result forex market traders placed most of their bets in reaction to comments by Fed officials, as well as remarks by Bank of England Governor Mark Carney who drove down expectations of a rate hike coming soon by the Bank.
The dollar index, a measure of the greenback’s strength versus the currencies of major US trading partners, rose to a one-month high of 97.79 in today’s trading. The greenback was helped by the comments of New York Fed President and FOMC voting member William Dudley who yesterday said that the Fed should remain on a path of rate normalization as diverting from that would risk inflation surging in the future and proving detrimental to the US economy. In addition and in response to recent weak inflation data, Dudley expressed optimism that wage growth will pick up and drive inflation to the Fed’s target of 2%. It is noteworthy that Dudley’s comments are usually perceived to be on the dovish side. Dallas Fed President, another FOMC voting member, Robert Kaplan is scheduled to give a speech at 19:00 GMT.
Turning to specific dollar pairs, dollar/yen hit a more than three-week high today when it reached 111.85. The greenback failed to maintain momentum though and the pair was last more or less flat on the day around 111.50. In the meantime, euro/dollar was marginally down at 1.1140, while most dollar gains on the day were recorded versus the pound.
As soon as the text of BoE Governor Mark Carney’s speech at Mansion House became available today, it led to steep declines of the pound versus other majors such as the dollar and the euro. Carney disappointed market participants by saying that now is not the time to raise interest rates. This follows rising expectations that the BoE is closer to a rate hike after a greater-than-anticipated number of Monetary Policy Committee (MPC) members supported such a move during the Bank’s latest meeting. Pound/dollar posted a two-month low of 1.2610 in today’s trading, while euro/pound was last trading comfortably above the 0.88 handle – the pair started the day at 0.8749. Sterling is likely to face added volatility ahead of Brexit and other political developments.
In terms of US data, the country’s current account deficit widened in the first quarter of the year, reaching $116.8 billion from the previous quarter’s upwardly revised $114.0bn (from $112.4bn before). The rise was below expectations of a deficit amounting to $123.8bn. As a percentage of GDP, the deficit in the current account grew to 2.5% during the quarter from 2.4% in the previous quarter. Dollar/yen barely moved upon immediate release of the data.
Out of Germany, monthly producer prices declined more than expected in May. Specifically, they recorded a fall by 0.2%, slightly below the 0.1% decline expected. The figure also negatively compares to April’s 0.4% growth. On a yearly basis, producer prices grew by 2.8% during the month, below forecasts of a 2.9% growth and April’s 3.4%. The euro didn’t have much of a reaction relative to the dollar and the pound as the data hit the markets in early European trading hours.
The outcome of today’s bi-weekly dairy auction, which tends to affect the kiwi as New Zealand is a major dairy exporter, is expected to follow soon.
Concluding with oil, WTI and Brent crude both fell to seven-month lows today with losses nearing 3.0% on both benchmarks. WTI and Brent were last trading close to the day’s lows at $42.94 and $45.66 a barrel respectively. The decline was attributed to indications of rising production in Libya and Nigeria, the two OPEC member countries which are not bound by OPEC’s deal to cut production.