Month-end positioning leads to volatile FX markets as participants look to holiday weekend
Lack of economic data today has FX markets focusing on yesterday’s inflation stories and month-end flows. The dollar is slightly stronger as Fed officials repeat their mantra that higher inflation data is a result of very low comparable figures during the worst of the pandemic lockdowns. The New Zealand dollar increases after their central bank indicates rates may rise next summer and the Chinese renminbi strengthens to another 3-year peak.
“Tough times never last, but tough people do.”
May 26, 2021
EUR/USD 1.2225 GBP/USD 1.4126 USD/CAD 1.2124 AUD/USD 0.7748 USD/JPY 108.99 USD/CNH 6.3913 USD/ILS 3.2497 USD/MXN 19.9168 USD/CHF 0.8967 USD/INR 72.7762 USD/BRL 5.3399 USD/SGD 1.3250 USD/DKK 6.0833 USD/SEK 8.3002 USD/NOK 8.3296
Typical month-end currency transactions by corporations and investors are sending the dollar higher this morning in volatile trading.
The financial markets seem to largely believe the Federal Reserve's position that inflation data will show large increases for the next few months and then moderate such that the Fed can maintain ultra-lose monetary policy. Under this framework, the dollar will continue to weaken as it’s safe-haven benefits fade.GBPThe pound is flat while political drama circles again around Prime Minister Johnson as his former advisor Dominic Cummings turns against him. The pound is up 2.5% vs. the dollar in May and +4% since the start of the year. GBP is hanging onto gains coming into month end.EUR
The euro is weaker this morning on what is mostly seen as profit taking. The euro is up over 4% since the end of March and is expected to continue to gain between now and end of this year. Although Europe is behind the US in vaccinations, the expectation is the economy will be opening with crucial summer vacation travel set to increase.CAD
The Canadian dollar is weaker this morning despite slightly higher oil prices. The loonie has gained 1.6% vs. the US dollar this month on general support for commodity currencies. The Canadian government is considering opening the border with the US, but will likely require proof of vaccination before letting anyone in their country.ASIA/PACIFIC
New Zealand dollar gained after the Reserve Bank of New Zealand projected rates may rise in the second half of 2022. NZDUSD trades up 1.82% this week.
Chinese authorities set the daily FX rate for the renminbi at a level consistent with a market movement that recently strengthened the currency. The move is seen as an indication China is comfortable with a stronger renminbi causing the currency to move further into a new 3-year record.
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