The dollar is in slightly higher ground heading into European trading today. The greenback remains supported since last week, fueled by a few key factors:
- US CPI data revived fears of more stubborn inflation than expected.
- Security flows arising from geopolitical tensions between Israel and Iran
- Risk assets correct down due to a combination of the two factors above
- Treasuries sell off with 10-year yields now at 4.60%, highest in five months
To simplify things, I would say that the strength of the dollar is just a case of divergence trade.
While all other major central banks are on the verge of initiating rate cuts, the Fed’s timetable continues to be pushed back. We have now moved from March to June, and now to September. And the Fed’s total rate cut planned for the year is now just 43 basis points. Mind you, this figure was 156 basis points at the end of last year. What a difference four months can make.
In any case, that’s where we are now.
Looking at European trade today, there may not be much that can really change this picture. At most, dollar bears can afford some relief from geopolitical tensions to help curb the dollar’s recent rise. Otherwise, the trend is your friend and it is difficult to detect a reversal when technical momentum persists.
We will soon have access to UK employment data, but the British pound is unlikely to be affected too much. A BoE rate cut remains expected for some time in August and labor market data still has some oddities that need to be ironed out by the ONS.
06:00 GMT – March Wholesale Price Index in Germany
06:00 GMT – UK wage changes in March
06:00 GMT – ILO unemployment rate in the UK in February
06:00 GMT – Average weekly wage in the UK in February
08:00 GMT – Final Italian CPI figures for March
09:00 GMT – Eurozone February trade balance data
09:00 GMT – April ZEW survey in Germany: current conditions and economic sentiment
That’s all for the upcoming session. I wish you good days ahead and good luck in your trading! Stay safe out there.
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