- Fed’s Dudley supports outlook
- British PM denies resignation rumors
- Macron’s mixed win
- Euro trade builds momentum
A quiet week ahead will include a number of Fed speakers, beginning with NY Fed President Bill Dudley. Speaking at a business roundtable, Dudley said that while we are “pretty close” to full employment, inflation is still lower than the Fed would like. Mirroring the Fed minutes, he confirmed an optimistic outlook: “we think if the labor market continues to tighten, wages will gradually pick up, and with that, we’ll see inflation get back to 2%.” The dollar moved higher as Dudley also confirmed his view that the US’s period of economic expansion “has a long way to go.” Fedspeak will continue to be closely watched for any deviation from the script as the debate on whether last week’s rate rise was hawkish rages on.
London was roiled with yet another attack. A man drove a van into a crowd of worshippers at a mosque early Monday, injuring ten and killing one. Prime Minister Theresa May spoke out against the attach and the rise of extremism as questions about public security raise yet another concern for the troubled Prime Minister. Rumors of replacement have been budding after she called a snap election that caused her party to lose majority in Parliament, but her office have denied that she is considering stepping down as the public continues to believe that she is the leader most trusted to secure a good Brexit deal. Today marks the start of Brexit negotiations, but we don’t expect results this early on and this will likely have minimal impact on the pound.
France’s Emmanuel Macron took home a big win just weeks after being elected President. Macron’s moderate political party – formed just 12 months ago – gained the biggest parliamentary majority in 15 years in yesterday’s election. Muddying this victory somewhat was the dismal voter turnout. With the lowest turnout ever for France’s parliamentary election, with 57% of voters abstaining. While this doesn’t imbue a strong sense of confidence, it does confirm an increasingly stable political climate in Europe. Macron’s majority in parliament will give him a wide berth to drive economic reform in France.
Investors continue to buy into the belief that the euro will remain strong over the coming months. An article from the Wall Street Journal notes that investors in North America have been buying more investments in Europe without hedging against adverse moves in the euro. It’s a common practice to protect foreign investments from currency depreciation so that when they repatriate their funds the value doesn’t fall. Buying without this hedge indicates confidence on the euro’s outlook just as speculative positions on euro longs increase for 6th week in a row. As the political climate stabilizes and the economic outlook continues to run hot, their bets seem fair in our view.
EURUSD: Euro took a turn lower as the NY Fed President confirmed a positive outlook for inflation and the US economy.
GBPUSD: Sterling was resilient after a terror attack in London, but a stronger dollar took over as North American traders started their morning.
AUDUSD: Aussie dollar lower after China, their largest trading partner, saw new home prices rose at the slowest pace in nine years.
USDCAD: Canadian dollar started the North American session as the lowest performer after oil fell to a seven-month low.
USDJPY: The yen lower after a surprise trade deficit in May as import growth accelerates.