FOREX: Was The New York Fed’s Latest Inflation Expectations Survey A Canary ?
Today's PPI and tomorrow's CPI figures will be critical in determining whether the US is making progress in its disinflation efforts or if prices remain too stubborn for the Federal Reserve to consider rate cuts. The current positioning of USD/JPY suggests that FX traders are leaning towards the latter scenario. This stance could result in a lack of clear direction in FX markets, with volatility remaining subdued.
The CPI report will likely have a more significant market impact, but given the recent trend of the dollar reacting strongly to tier-two data, today's PPI figures shouldn't be underestimated for their potential to move the dollar.
During the Asian trading session, the yen continued to gradually weaken, pushing USD/JPY back above 156.50. This mirrors yesterday's price action, with the yen not gaining support from the ongoing adjustment in Japanese yields. The New York Fed’s latest survey of consumer inflation expectations, which came in higher than expected, could be a canary. This survey showed the highest reading since November, increasing market participants' concerns about rising US inflation at the start of the year. These concerns are now focused on the upcoming US PPI and CPI reports for April.
We still have half of our long Euro position at good levels. Economic growth has picked up outside of the US at the start of this year, with the strength of the economic recovery being more pronounced than expected in Europe. The euro-zone economy expanded by 0.3% quarter-over-quarter in Q1, marking the fastest quarter of growth since Q2 2022.
Given this robust performance, our Euro position remains well-supported. The better-than-expected economic recovery in Europe provides a strong foundation for the Euro, and with our current levels, we are well-positioned to benefit from any downside miss or consensus US inflation print.
I’m participating in a USDJPY panel for CGTN tomorrow and I will post the discussion link when available. But in the meantime, I will not be updating the blog as frequently over the summer ( MAY through SEP)