- Since French President Emmanuel Macron announced early elections last week after his governing centrist party’s crushing defeat by the extreme right in the European Parliament elections, the single currency has been under pressure.
- Due to the Wednesday closure of U.S. markets, overall market volatility was muted.
RATING CUT HOPE
- According to data released on Tuesday, retail sales in the United States barely increased in May, and data from the previous month was significantly revised down, indicating that the second quarter’s economic growth was also lackluster.
- The CME FedWatch tool indicated that traders priced in a 67% likelihood of easing against a 61% chance a day earlier, which led to a little increase in rate-cut predictions for September as a result of the statistics. This year, 48 basis points of reduction are priced in by the markets.
- Vasu Menon, managing director of investment strategy at OCBC, said, “(The) Fed will need more data to support its case for a rate cut and investors should not overact to one or two data points.”
- Mild U.S. inflation data from last week stood in stark contrast to the Fed’s generally hawkish posture, as they reduced their earlier median forecast for a quarter-point rate reduction this year to one.
- “Rate cuts are a stronger story for 2025 but that’s fine because there is hope that it will happen in a bigger way over the next two years even if 2024 remains uncertain, and that will keep markets supported,” Menon said.
- As they move gingerly in the direction of what most believe will be a rate decrease or two by the end of this year, Fed officials are searching for more evidence that inflation is moderating and for any warning signals from a still robust labor market.
- At 105.19, the dollar index, which compares the performance of the US currency to six others, remained stable.
- The dollar remained relatively stable at 157.92, close to the six-week highs reached last week, while the Japanese yen weakened.
- In the previous 4-1/2 years, the yen has lost a third of its value compared to the dollar, mostly as a result of the significant difference in interest rates between Japan and the US.
- According to minutes from the Bank of Japan’s April policy meeting, officials discussed the potential effects of a weaker yen on prices. Some even mentioned the possibility of an early interest rate hike if inflation exceeds expectations.
- Oil prices increased in the commodities market, with U.S. and Brent crude futures up 0.48% and 0.6%, respectively, to trade at $81.96 and $85.80 a barrel.
Source:
investing
