The USD fell sharply today, and was only surpassed by the JPY as the weakest of the major currencies. The AUD, CHF and EUR were all stronger.
The USD fell today and was one of the weakest of the majors
The fall in the greenback were triggered by a more hawkish ECB hike. An overnight sleep after the Fed decision yesterday had more traders focused on the Fed Chairs less hawkish comments vs his more hawkish dialogue on inflation and the dot plot (forecasting 50 BPs of hikes). Despite their forecast of 5.60% as the end of 2023 rate (up from 5.10), he market has it’s doubts as they are pricing in just a 65% probability of one more 25bp hike. The less hawkish thoughts were helped by the realization that the surge in the jobless claims a week ago, was not just influenced by Memorial Day seasonals. Jobless claims remained unchanged at a lofty 362K level. Softer import and export prices, a negative Philly Fed manufacturing index, and softer Industrial production and Capacity Utilization also helped to contribute to the lower dollar bias.
Technically, the USD Index (DXY) fell from a high of 103.38 to a low of 102.09. That decline took the price back below the 100-day MA at 103.04. The 50% of the DXYs move up from the 2021 low comes in at 101.90 and is the next downside target. If breached, it would increase the bearish bias and have traders looking toward the lows for the year near 100.82 (see chart below).
The US dollar index (DXY) fell below 100 day MA
As mentioned, the ECB hiked by 25 basis points across the board. In the question-and-answer session ECB President Lagarde made clear that the ECB’s current series of policy actions are not yet complete. She emphasized that it is not a time for pausing and indicated that the ECB’s work is far from done. She commented that the central bank aims to ensure that core inflation is on a downward trajectory and expressed dissatisfaction with the current inflation outlook.
Lagarde refrained from commenting on the terminal rate, suggesting that its status will only be apparent once it has been reached. In the absence of significant changes, she indicated that another rate hike is likely in July, revealing a broad consensus behind this decision within the ECB.
She also remarked on the inflation prediction for 2025 under the current parameters, noting that an inflation rate of 2.2% would not be satisfactory. The ECB expects the indirect costs resulting from energy price increases to continue fading. Furthermore, the bank has decided to allow the Asset Purchase Programme (APP) to transition into a runoff mode.
President Lagarde’s suggestion of another likely rate hike in July widened the policy gap between the Fed and the ECB. .
Overall, the trading environment was risk-on, with stocks surging. This situation further hampered the dollar.
A look around the markets shows:
- Crude oil is trading at $70.76 up $2.49 after trading as low as $68.14
- Gold prices reacted to the lower dollar by rising $16.12 or 0.83% at $1957.97.
- Silver prices fell $0.03 or -0.15% $23.87
- Bitcoin is trading at $25,317. The digital currency reached a low of $24,756. That was the lowest level since March 16.
US stocks have no fear of the Fed. After trading lower earlier, they gained a foothold and rallied sharply. The S&P index is working on its 4th week in a row higher. The NASDAQ index is working on its 8th consecutive week to the upside (with one more day to go). The final numbers today showed:
- Dow industrial average rose 428.73 points or 1.26% at 34408.07. At session lows the Dow industrial average was down -33.36 points
- S&P index rose 53.27 points or 1.22% at 4425.85. The last time the price traded over 4400 was on April 21, 2022. At session lows the S&P index was down -9.98 points
- NASDAQ index rose 156.33 points or 1.15% at 13782.81. The NASDAQ index is trading at the highest level since April 8, 2022. At session lows the NASDAQ index was down -65.11 points
For the trading week:
- Dow industrial average is up 1.57%
- S&P index is up 2.95%
- NASDAQ index is up 3.95%. That’s the largest gain since the week of March 13.
In the US at that market yields are lower on the day and near their lows for the day
- 2-year yield 4.652% -5.5 basis points
- 5-year yield 3.915% -9.4 basis points
- 10-year yield 3.722% -7.6 basis points
- 30 year yield 3.838% -4.3 basis points