This week, the trend of a stronger US dollar has intensified. Among the major currencies, there has been noticeable buying of the US dollar against Oceanic currencies such as the New Zealand dollar and the Australian dollar. Following that, the yen has been sold off. Although the USD/JPY exchange rate is still far from last year’s level of around 152 yen, it reached a significant milestone yesterday, surpassing the 140 yen mark. It has experienced a rapid rise of about 3 yen from the 137 yen range at the beginning of the week.
The strong US economic indicators and the resulting market speculation about further US interest rate hikes have been driving the strength of the US dollar. Today, as it is the end of the week, some adjustment in the pace of the rise is expected. However, before that, it would be necessary to confirm the results of the important indicator, the US PCE deflator. Market expectations are anticipating a slight increase in the year-on-year deflator, from +4.2% to +4.3%. The core deflator is expected to remain at the same level as the previous reading, at +4.6%.
Depending on the outcome, if the persistent US inflationary pressures are impressed upon the market, there is a possibility of further upward movement in the US dollar after the end-of-week adjustment. Other scheduled releases include the US personal income and spending for April, the preliminary report on durable goods orders, and the final reading of the University of Michigan Consumer Sentiment Index for May.
Regarding scheduled speaking events, speeches and participation in events by Vujčić, the Governor of the Croatian National Bank, and Lane, the Chief Economist of the ECB, are planned during London time. This week, the EUR/JPY pair has shown a slight tendency towards yen weakness, and it has been pointed out that this is due to continued speculation about additional interest rate hikes by the ECB. It would be prudent to check whether this point is confirmed or not based on the content of their speeches.
The PCE deflator is important to watch. It is expected to have a significant impact on the movement of the USD.