Investors have completely disregarded the tinge of optimism about global markets in the statement this week from the Federal Open Market Committee. And, according to Fed fund futures, most investors don’t think the central bank will be able to pull off a rate hike this year.
We will get the U.S. nonfarm payroll numbers next week. No one should expect that report or the two ISM manufacturing survey numbers to provide much support for the greenback.
Even though the abundance of Fed presidents, including two FOMC voters, are likely to say that June is a live meeting and that rates will rise this year – a message they repeat consistently – it won’t convince investors that the central bank will hike at the next meeting.
|Rough times for the dollar in recent days. Is there a turnaround coming?|
Based on the FOMC statement, the Fed has moved closer to tightening, but the chance of a rate rise in June is next to zero because policymakers are still split on the balance of risks.
Unless stocks climb to record highs, the next two payroll reports rise 275,000 or more, average hourly earnings increase consistently AND consumer spending exceeds 0.5% in April and May, the Fed won’t be tightening until September at the earliest.
Positive economic data will help the dollar, but it won’t be enough to turn the greenback and, more importantly, sentiment around. The only thing that matters are expectations – the Fed remains hawkish and yet the dollar falls.
|“Positive economic data will help the dollar, but it won’t be enough.”|
The Bank of Japan and the Reserve Bank of New Zealand are dovish, and their currencies rise because investors see this as a confirmation of the impotence of central banks.
The U.S. dollar could remain under pressure until investors are more confident that these and other central banks will resume their intended policy actions.
A gauge of U.S. consumer sentiment fell in April to its lowest level in seven months, evidence of growing concerns about the nation’s economy. The University of Michigan consumer-sentiment index for April declined to 89.0 from March’s final reading of 91.0. It was the lowest level since September.
The pace of raises and other compensation gains for workers in the U.S. has stagnated over the past year, despite the steady gains in job growth. The employment-cost index increased a seasonally adjusted 0.6% during the first quarter of this year. From a year earlier, total compensation increased 1.9% during the quarter, a very slight deceleration from the 2% annual gain recorded in each of the prior three quarters. Wages and salaries, which make up 70% of total compensation, failed to pick up much momentum. They grew slightly faster during the first quarter, up 0.7% from the fourth quarter of 2015. But they slowed a bit from a year earlier, rising 2%. The annual gain was the weakest since the second quarter of 2014 and is roughly in line with gains recorded since the recession ended in mid-2009, the Washington Post reported.
Demonstrators stomped on cars, hurled rocks at motorists and forcefully declared their opposition to Republican presidential candidate Donald Trump on the street outside the Orange County amphitheater where he was holding a rally. The crowd halted traffic as protestors walked in the roadway, some demonstrators waving American and Mexican flags. Protesters smashed a window on at least one police cruiser, punctured the tires of a police SUV, and at one point tried to flip a police car. Local police said that 17 people – 10 males and seven females – were arrested on suspicion of unlawful assembly.
President Barack Obama announced new efforts to speed up development of so-called smart guns as part of his push to reduce gun violence. Smart guns have technological safety features to help prevent accidental shootings. These features include fingerprint activation, which allows only designated users to fire the weapon. The administration is developing guidelines for manufacturers looking to sell smart guns for law-enforcement agencies. Gun safety advocates say the technology is promising, but needs more research to ensure it actually works.
The Money and Markets team
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