The dollar is reaching new multi-month highs against the pound and the euro after data out of the U.K. and Eurozone reflects a continued slowdown in the economies. Investors are looking to the safe-haven Japanese yen over the dollar after President Trump shows some pessimism around the North Korea summit and the trade deal with China. U.S. manufacturing data is due soon and later Wednesday we’ll see the Federal Reserve’s FOMC meeting minutes.
Dollar holding on with risk-off sentiment
Thanks to poor data out of the U.K. and Europe, the U.S. dollar is still trading up against its peers. However, fading optimism over a trade deal with China and a meeting with North Korea’s Kim Jong Un, has the dollar losing against the Japanese yen.
USD/JPY is down below 110.0, trading around 109.8 at 9 a.m. EST. The pair plunged overnight as markets reacted to President Trump’s comments during his meeting with South Korean President Moon Jae-in at the White House Tuesday.
“There’s a chance, a very substantial chance, it won’t work out,” Trump said in reference to a June 12 meeting in Singapore, adding that didn’t mean a meeting between the two leaders couldn’t happen at a later date.
The President also said he is “not really” pleased with how the trade talks with China have gone so far. Trump said he is looking into softer penalties for ZTE as a favor to President Xi Jingping.
Despite the risk-off sentiment, the dollar is still propped up by U.S. Treasury yields. The 10-year benchmark is still above 3%, although down from the highs of 3.1%.
U.K. inflation disappoints
Cable is reaching the lows of December 2017 after U.K. consumer price index data for April missed expectations.
Core CPI grew 2.1% year over year, compared to estimates of 2.2%. Headline CPI also slightly missed, coming out at a 2.4% increase year over year. The inflation data confirms the Bank of England’s tone of cautious optimism during its inflation report to the Treasury Committee Tuesday.
GBP/USD fell from above 1.341 to 1.331 early Wednesday. The U.K. producer price index for April also missed expectations.
Euro-zone PMIs confirm sluggish growth
A series of Markit manufacturing and services PMIs out of the Eurozone Wednesday are showing slow growth for the region.
The composite PMI for the Eurozone fell to an 18-month low of 54.1 for May, compared to estimates of 55.0. The Manufacturing PMI came out at 55.5, compared to 56.0 expected. And services PMI slipped to 53.9 against estimates of 54.6. The May PMIs for Germany and France also missed expectation.
EUR/USD fell from 1.1765 to 1.171 on the news. The pair has since dipped below 1.170 a few times and trades around there.
U.S. PMIs, Fed minutes coming up
The U.S. Markit manufacturing and services PMIs for May are due shortly this morning, expected to show small growth from the previous month.
New home sales for April are also coming out Wednesday morning.
But the real event for currency watchers will be the release of the Fed’s FOMC meeting minutes from earlier this month. We’ll see if there is any discussion in the minutes about the Fed’s 2% inflation target, and if some members of the FOMC are willing to go over that target. The minutes will help investors determine if they’ll price in three or four total rate hikes this year. So far, there’s been one rate hike.