Market Comment – Dollar under pressure as Fed speakers multiply

XM Research

Market Comment – Dollar under pressure as Fed speakers multiply

May 22, 2024 at 8:18 am GMT- Achilleas Georgolopoulos

FOMC minutes in the spotlight today
Mixed UK CPI probably keeps the door closed to a June move
RBNZ surprises with its hawkishness; kiwi benefits
Nvidia reports after the US market close

Dollar remains on the back foot

The quieter data calendar has turned the market’s attention to the plethora of Fed speakers eager to express their opinions ahead of the next blackout period. Analyzing almost 35 public appearances by Fed speakers since May 1 reveals an overwhelming support for patience as both the hawks and the doves accept the lack of progress on the inflation front.

Hence, more time and more data are needed to measure the strength of domestic demand and evaluate the extent of the current economic soft patch. Having said that, certain Fed hawks are becoming more aggressive as they appear concerned about the restrictiveness of the current Fed rates, in defiance of Chairman Powell, who’s been quick to rule out rate hikes.

more time and more data are needed to measure the strength of domestic demand

The minutes from the May 1 Fed meeting will be published today and it will be interesting to see how high the bar was set for additional tightening. The market does not enjoy comments about rate hikes and will be on the lookout for such rhetoric again today.

UK CPI drops, but inflation not dead

With Governor Bailey putting great emphasis on the April inflation report, there was intense speculation about how low inflation could print. Indeed, the annual growth in headline inflation dropped to 2.3% from 3.4% in the previous month. However, the doves’ smiles have probably quickly disappeared as the core indicator that excludes food, energy, alcohol and tobacco printed at 3.9% versus expectations for a more significant easing.

While the overall inflation trend remains bearish, rate cuts by the BoE might not be as close as certain market participants have hoped for. This mixed inflation report has pushed the pound higher against both the euro and the dollar with the focus now turning to tomorrow’s preliminary PMI surveys and Friday’s retail sales data.

rate cuts by the BoE might not be as close as certain market participants have hoped for

RBNZ ups its hawkishness

The surprise of the day, up to now, came from the RBNZ. The third meeting in 2024 caught both the analysts and the market somewhat off guard. Governor Orr et al maintained their recent hawkishness and repeated the usual statement phrase for the need to maintain monetary policy at restrictive levels to ensure inflation returns to target within a reasonable timeframe. But more importantly, the committee discussed the possibility of increasing rates at this meeting.

the committee discussed the possibility of increasing rates at this meeting.

This continued hawkish stance stems from the latest Monetary Policy statement. The quarterly projections were revised upwards with inflation now expected to reach the 2% midpoint of the RBNZ’s target range by June 2026, two quarters later than envisaged in February. The kiwi jumped initially higher against the dollar as the 0.6092 level acted as a strong support level. However, it has since surrendered part of its gains as Governor Orr decided to moderate his hawkishness at the press conference.

Nvidia reports after the US market close

The current earnings round has almost been completed, but the best has been saved for last. Nvidia will report its first quarter earnings after the US market closes today. There are strong expectations for a sizeable jump in earnings and its gross profit margin hitting a new peak, but the market will be mostly looking for any commentary on the AI front.