Confusing Signals: The foreign exchange (FX) market is stuck in neutral this week as US economic data sends mixed messages. Consumer confidence dropped, but durable goods orders surprised on the upside. Business investment, however, remains stagnant despite a strong economy and stock market.
Data Today: Today’s calendar is light on data, with only wholesale sales and inventory revisions scheduled. The main event is a speech by Federal Reserve Governor Chris Waller tonight, who might provide clues about the Fed’s future actions.
Waller’s Words Weighed: Waller’s previous comments foreshadowed Fed Chair Powell’s recent pronouncements. Investors expect him to reiterate the Fed’s patient approach to inflation and its optimistic outlook on disinflation. His stance on recent data, especially the contrasting consumer confidence and durable goods reports, will be closely watched.
Fed Rate Expectations Hold Steady: Market expectations for Fed rate hikes remain unchanged unless Friday’s Personal Consumption Expenditures (PCE) data throws a curveball. Markets still anticipate a rate hike in June and potentially three more by year-end, mirroring the Fed’s projections.
Dollar in Stabilization Mode: Despite the data confusion, the US Dollar appears to be finding its footing. Some quarter-end financial flows might cause short-term volatility, but overall, the Dollar seems to be stabilizing.
Yen and Franc Feel the Heat: The biggest currency movers this week have been the Japanese Yen (JPY) and Swiss Franc (CHF), both known for their low yields. The dovish Swiss National Bank has put downward pressure on the CHF, and a bottom for the currency might not be in sight yet. The JPY continues to test Japan’s intervention tolerance against the USD, reaching 152 overnight. However, actual intervention is likely a ways off, potentially happening closer to 155 and depending on the pace of appreciation, not just the level.