All roads lead to the dollar
2024.06.28 01:55
A look at the day ahead in European and global markets from Rae Wee
Investors kept a close eye on the first U.S. presidential debate between Democratic President Joe Biden and his Republican rival Donald Trump in early Asian hours on Friday, as the two clashed on stage ahead of November’s U.S. election.
The debate was hardly market moving, though if anything, it probably did little to assuage concerns about the country’s political and economic future.
Biden – with his voice hoarse from a cold – notably stumbled over his words multiple times, while Trump said tariffs will decrease deficits and not increase inflation.
Market odds have narrowed slightly for a Trump win in the wake of the debate, which could translate to upside risks in inflation.
That would mean the Federal Reserve keeps rates higher for longer, U.S. Treasury yields stay elevated and the dollar remains resilient.
The dollar rose to a 10-day high against the Mexican peso and climbed against other trade-sensitive currencies, including the Canadian dollar, in the wake of the debate.
The main market event is the release of the U.S. core personal consumption expenditures (PCE) price index – the Federal Reserve’s preferred measure of inflation, later on Friday.
Expectations are for the core PCE price index to have risen 2.6% on an annual basis in May, a slowdown from April’s 2.8%. Should the data line up with forecasts, that would likely bolster bets the Fed will kick off its easing cycle in September.
Analysts, however, are sceptical about the dollar’s downside. Major central banks elsewhere have already begun monetary easing and there are a number of risks plaguing other economies, such as political turmoil in Europe.
The first round of French elections is due to kick off this Sunday.
Perhaps the biggest victim of the dollar’s relentless strength is the yen, which on Friday again tumbled to a 38-year low.
The dollar effortlessly barged past the 161 yen level to peak at 161.27 yen, while the euro similarly touched a record high against the Japanese currency.
That kept traders on their toes for potential intervention from Tokyo, with the country’s appointment of a new top foreign exchange diplomat on Friday fuelling expectations that a move from authorities to shore up the yen could be imminent.
Also on Friday, separate data showed core inflation in Japan’s capital accelerated in June, while factory output rebounded nationally in May.
Key developments that could influence markets on Friday:
– U.S. core PCE price index (May)
– UK Q1 GDP
– Germany import prices (May)
