Dollar Under Pressure as Risk Advances
JUNE 25, 2021
The U.S. dollar starts the day slightly on the backfoot.
Global risk sentiment is solidly in the green, putting modest pressure on the safe-haven greenback. The S&P and Nasdaq look to extend gains and push to new all-time highs at the open. Equities received a boost after a bipartisan group of Senators and President Joe Biden agreed on a large infrastructure deal, although the deal will face tough opposition in Congress. We mentioned yesterday that a large fiscal spending bill will change the outlook for inflation if it passes.
We got a look at current inflation this morning. The PCE Deflator, the Fed’s favored inflation reading, showed an uptick of 3.9% year over year. This is well above the Fed’s target of 2%, although many policymakers maintain the spike is “transitory.” The core reading also came in as expected at 3.4% on a year-over-year basis. The dollar is under pressure following the print.
U.S. personal income came in at negative 2.0% on a month-over-month basis, which was expected as it coincided with the end of stimulus payments. Economists had expected a fall of 2.5%. Personal spending also decreased by 0.4%.
There is another slew of Fed speakers on today’s docket, with no less than five regional Fed Presidents due to speak throughout the day. University of Michigan consumer sentiment will cross the wire at 10.am.
What to Watch Today…
- University of Michigan sentiment at 10 a.m.
On what was a mostly quiet night, the New Zealand dollar was the best performing G10 currency. The New Zealand dollar found support on general risk sentiment and as economists at ANZ indicated a risk that the Reserve Bank of New Zealand would raise interest rates before the end of the year. The Kiwi has risen 2% this week and is on track for its best winning streak in four months.
The Mexican peso gained as much as 2% during yesterday’s session. The peso started the day by gaining 1% versus the U.S. dollar ahead of the Bank of Mexico’s interest rate decision. Banxico surprised some by raising its interest rate by 25 basis points from 4% to 4.25%. The peso extended its gains and closed the day 1.7% stronger versus its American counterpart. The peso was able to hold those gains overnight and is holding a two-week high versus the greenback.