US DOLLAR INDEX FACES BARRICADES AROUND 104.70 ON HIGHER RECESSION FEARS, US PMI IN FOCUS
The DXY is experiencing hurdles around 104.70 as a recession looks likely on hawkish Fed.
The US economy could return to a 2% inflation rate in a period of two years.
An underperformance is expected from the US economy on the PMI front this week.
The US dollar index (DXY) is declining modestly in the Asian session on advancing odds of a recession in the US economy.
The DXY has sensed barricades around 104.70 and is expected to extend its losses after slipping below the critical support of 104.60. After a bullish move towards 105.10 on Friday, the asset witnessed a mild correction to near 104.60, which is expected to add losses if it violates.
Fed Mester sees inflation at 2% in two-years
Cleveland Federal Reserve (Fed) President Loretta Mester in an interview with CBS News on Sunday dictated it will take at least two years to achieve inflation near 2%. Also, a slowdown in the growth targets is the expectation but is not predicting a recession situation. The Fed policymaker also see a consecutive rate hike of 75 basis points (bps) in the July monetary policy. A spree of heavy interest rate elevation may spurt the Unemployment Rate above 4% but the Fed is dedicated to doing ‘whatever it takes’ to fix the inflation mess.
Lower forecasts for the US PMI
This week, US Purchase Managers index (PMI) data by the IHS Markit will remain in focus. The economic data is due on Thursday and a vulnerable performance is expected from the data. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. The bifurcation of the Composite PMI into the Manufacturing and Services dictates a severe underperformance. The Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7.
Key data this week: Existing Home Sales, Initial Jobless Claims, S&P Global PMI, Bank Stress Test Info, Michigan Consumer Sentiment Index (CSI), and New Home Sales.
Major events this week: People’s Bank of China (PBOC) interest rate decision, Reserve Bank of Australia (RBA) minutes, Bank of Japan (BOJ) minutes, European Union (EU) leaders summit.
US DOLLAR INDEX FACES BARRICADES AROUND 104.70 ON HIGHER RECESSION FEARS, US PMI IN FOCUS – Share Market Daily
US REVIEWS CHINA TARIFFS, POSSIBLE PAUSE ON FEDERAL GAS TAX TO CURB INFLATION
“President Joe Biden’s administration is reviewing the removal of some tariffs on China and a possible pause on the federal gas tax as the United States struggles to tackle soaring gasoline prices and inflation, two top officials said on Sunday,” per Reuters
The news also adds that Energy Secretary Jennifer Granholm said the President was also evaluating a pause on federal gas tax to bring down prices, telling CNN that such a move was “not off the table”.
“Biden has said he is considering removing some of the tariffs imposed on hundreds of billions of dollars worth of Chinese goods by his predecessor in 2018 and 2019 amid a bitter trade war between the world’s two largest economies,” mentions Reuters as well.
It’s worth noting that the weekend updates from Beijing were also positive for the risk appetite and can offer intermediate relief to the markets. However, hawkish Fed bets and recession fears keep challenging optimists.
FX implications
Antipodeans seem to have reacted to the news by starting the week on a positive note. That said, the AUD/USD pair is up 0.23% around 0.6935 by the press time of early Monday morning in Asia.