Forex Top Team

Monitoring Sustained Dollar Strength Ahead of US Holiday Weekend

This week has seen a trend of dollar strength. Several US financial officials have shown a cautious stance on starting rate cuts within the year. Economic statistics, such as the better-than-expected preliminary PMI for May, have supported the dollar’s strength. The contrast in monetary policy expectations between the Fed, which is hesitant to cut rates, and the ECB and Bank of England, which are expected to start rate cuts in June and summer respectively, is driving dollar buying pressure.

Today, key data releases include the preliminary US durable goods orders for April and the final University of Michigan Consumer Sentiment Index for May. Durable goods orders are known for their volatility and often diverge from market expectations. The Michigan Sentiment Index is expected to be revised upward from the preliminary reading of 67.4 to 67.7.

Additionally, US Treasury Secretary Janet Yellen reiterated that foreign exchange intervention should be rare. This statement suggests that yen-buying intervention by the Japanese government is unlikely under US pressure, maintaining the focus on the significant US-Japan interest rate differential. However, overseas speculators are beginning to price in an early rate hike by the Bank of Japan (BoJ) as Japanese long-term interest rates rise. The timing of a BoJ rate hike could become a topic of interest moving forward.

Next Monday, the US market will be closed for Memorial Day, and the UK market will be closed for Spring Bank Holiday. With the overseas three-day weekend approaching, it remains to be seen whether the dollar strength observed this week will persist. The short-term trader’s adjustments will need to be carefully monitored.

Upcoming Economic Indicators:

  • Mexican Trade Balance (April)
  • Canadian Retail Sales (March)
  • US Durable Goods Orders (preliminary) (April)
  • University of Michigan Consumer Sentiment Index (final) (May)

Upcoming Speaking Events:

  • ECB Governing Council Member Schnabel
  • Swiss National Bank President Jordan
  • Deutsche Bundesbank President Nagel
  • Bank of Slovenia Governor Vasle
  • Bank of Estonia Governor Müller
  • Bank of Spain Governor de Cos
  • Fed Governor Waller
  • Bank of Portugal Governor Centeno

Although there are many ECB-related events, the consensus is for the ECB to start rate cuts in June, so no significant new information is expected. Attention will likely be on the comments from Fed Governor Waller.

(Source: Minkabu)

This week has been characterized by volatile movements without a clear trend, continuing a range-bound tendency. While there might be some movement following the US durable goods orders and the Michigan Consumer Sentiment Index, it is unlikely to sustain.

More Insights