Financial markets will be looking for signs the Fed's new Quantitative Tightening (QT) measures will impact interest rates, money supply and the value of the dollar. With Fed interest rate increases mostly priced into current FX rates, trading around potential QT impact will drive financial markets. QT begins this month with initial reduction in money supply starting June 15 as some of the Fed’s bond holdings mature.
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June 1, 2022
EUR/USD 1.0724 GBP/USD 1.2560 USD/CAD 1.2616 AUD/USD 0.7227 USD/JPY 129.38 USD/CNH 6.6695 USD/ILS 3.3309 USD/MXN 19.6357 USD/CHF 0.9605 USD/INR 77.5287 USD/BRL 4.7586 USD/SGD 1.3710 USD/DKK 6.9379 USD/SEK 9.7646 USD/NOK 9.3508
The dollar is slightly up as we write. President Biden met Powell yesterday to stress the Fed’s independence and their mandate to tame inflation. The White House is assessing measures to mitigate inflation including easing tariffs.
JOLTS Job Openings for April expected later this morning with forecast at 11.3 million vs last month’s 11.5M – which was a record. Also, later this morning the ISM Manufacturing data for May will be released.GBP
The pound is slightly weaker vs. the US dollar. The cost-of-living crisis and increasing mortgage rates may have moderated house prices in the UK. Consensus sees house prices rising 10.5% YoY slowing from April’s 12.1%. Speculation has begun over the number of no-confidence motions tabled against Boris Johnson. The process within the conservative party is anonymous, with wargaming beginning on the outcome of a possible no-confidence vote.EUR
The euro is slightly weaker compared to the US dollar after European Central Bank Governing Council member, Edward Scicluna, said there may not be enough support for a 50 basis point increase in the ECB’s benchmark interest rate.CAD
The Canadian dollar headed toward a fifth day of gains as the price of oil remains high. Although OPEC+ is considering effective production increases, demand for oil is expected to remain high supporting prices of over $100/bbl. Bank of Canada's rate decision is expected later this morning with forecast showing a 0.50% increase to 1.50%.ASIA/PACIFIC
The Australian dollar gained when Australia’s three-year bond yield rose following data showing that the economy expanded faster than forecasted in the first quarter. These figures could bolster the case of the RBA to raise rates further this year.
The Japanese yen has weakened to a two-week low, slipping past 129 per dollar today. This comes following months of weakening in the yen as higher interest rates in the United States draw investors from Japan.
For more analysis on FX markets or information regarding SVB's FX services:
See all of SVB's latest FX information and commentary at www.svb.com/trends-insights/foreign-exchange-advisory
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