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Dollar mixed after IMF calls for delay in lift-off date

USD

The dollar traded mixed on Thursday and was marginally lower against a broad basket of currencies at the time of writing.

The currency may have been pressured by comments from the IMF encouraging the Fed to wait until mid-2016 before raising interest rates, as growth was not sufficiently strong yet to warrant a hike this year.

This drastic re-evaluation of a lift-off date from a well-respected institution weighed on investor expectations as it could influence some of the Fed’s policy-makers in their decision as to whether to raise rates.

Earlier this week a centrist FOMC member, Lael Brainard was unexpectedly doveish in her assessment of the economy and this along with the IMF’s exhortation to wait until next year is starting to build a case to delay normalization.

Offsetting the doveish tone was support from data which showed Initial Jobless Claims falling by a greater-than-expected amount to 276k (w/e May 28) when it had been expected to drop to 278k from a revised down 284k in the preceding week. Continuing Claims likewise fell more than forecast.

EUR

The euro strengthened on Thursday after data showed a rise in the euro-zone Retail sector which complemented the recent drive higher caused by rising euro-area bond yields.

Retail PMI rose to 51.4 in May from 49.5 previously – the move all the more significant because it marked a change from contraction to expansion by surpassing the 50 threshold.

As far as individual countries went, all the major economies showed rises, including Germany, France and Italy. German Construction PMI, however, fell below the previous figure, hitting 50.8 from 51.0.

The rally in bund yields rolled over on Thursday. On the previous day Mario Draghi had breathed fresh life into the rise during his post ECB meeting press-conference when he announced that 2015 inflation expectations had been revised up to 0.3% from 0.0%, and that markets should get used to more volatility. This created conditions unfavourable to bonds and pushed up yields. The rally hit a high of 0.99% (German bund yield) on Thursday before rolling over and moving back down again.

A more upbeat outlook for the euro-area is influencing bond markets in another way by introducing the possibility that the ECB could taper its 60bn/month bond-buying programme before the September 2016 exit-date.

GBP

The main news for Sterling on Thursday was the BOE rate meeting, which showed the MPC keeping policy unchanged.

It maintained the base lending rate at 0.5% – the same level it has been since the 0.5% cut in 2009 and the asset purchase scheme at 375bn.

The announcement had a slightly positive effect on the pound, but no policy change was expected so it came as no surprise.

Data tomorrow may cause more volatility when the BOE publishes inflation expectations, which came out at 1.9% previously.

There is also data for house prices from Halifax overnight.

Other news on Thursday included commentary from the U.K Chancellor who announced ambitious cuts of 30bn to try to erase the budget deficit and try to bring down the national debt.

The OECD had criticised the government’s austerity plans saying they were too rapid and could impact negatively on growth and the poor, however, the government appears to be going ahead with the cuts believing they are in the long-term interests of the economy.

JPY

The yen traded lower in the Asian session versus the dollar some 0.14% lower than Wednesday’s close. Currently the yen is trading at 124.47 per dollar midway through the New York session.

Today the Bank of Japan’s Governor Kuroda said the currency reflects Japan’s real economic fundamentals. He added that price stability is a goal of the Japanese central bank. But some economists and politicians have expressed worries of the drawbacks of a much weaker yen as it could outway benefits to exporters.

Investors are keen to monitor Japan’s leading as well as coincident indices data scheduled for release tomorrow.

USD

The dollar traded mixed on Thursday and was marginally lower against a broad basket of currencies at the time of writing.

The currency may have been pressured by comments from the IMF encouraging the Fed to wait until mid-2016 before raising interest rates, as growth was not sufficiently strong yet to warrant a hike this year.

This drastic re-evaluation of a lift-off date from a well-respected institution weighed on investor expectations as it could influence some of the Fed’s policy-makers in their decision as to whether to raise rates.

Earlier this week a centrist FOMC member, Lael Brainard was unexpectedly doveish in her assessment of the economy and this along with the IMF’s exhortation to wait until next year is starting to build a case to delay normalization.

Offsetting the doveish tone was support from data which showed Initial Jobless Claims falling by a greater-than-expected amount to 276k (w/e May 28) when it had been expected to drop to 278k from a revised down 284k in the preceding week. Continuing Claims likewise fell more than forecast.

EUR

The euro strengthened on Thursday after data showed a rise in the euro-zone Retail sector which complemented the recent drive higher caused by rising euro-area bond yields.

Retail PMI rose to 51.4 in May from 49.5 previously – the move all the more significant because it marked a change from contraction to expansion by surpassing the 50 threshold.

As far as individual countries went, all the major economies showed rises, including Germany, France and Italy. German Construction PMI, however, fell below the previous figure, hitting 50.8 from 51.0.

The rally in bund yields rolled over on Thursday. On the previous day Mario Draghi had breathed fresh life into the rise during his post ECB meeting press-conference when he announced that 2015 inflation expectations had been revised up to 0.3% from 0.0%, and that markets should get used to more volatility. This created conditions unfavourable to bonds and pushed up yields. The rally hit a high of 0.99% (German bund yield) on Thursday before rolling over and moving back down again.

A more upbeat outlook for the euro-area is influencing bond markets in another way by introducing the possibility that the ECB could taper its 60bn/month bond-buying programme before the September 2016 exit-date.

GBP

The main news for Sterling on Thursday was the BOE rate meeting, which showed the MPC keeping policy unchanged.

It maintained the base lending rate at 0.5% – the same level it has been since the 0.5% cut in 2009 and the asset purchase scheme at 375bn.

The announcement had a slightly positive effect on the pound, but no policy change was expected so it came as no surprise.

Data tomorrow may cause more volatility when the BOE publishes inflation expectations, which came out at 1.9% previously.

There is also data for house prices from Halifax overnight.

Other news on Thursday included commentary from the U.K Chancellor who announced ambitious cuts of 30bn to try to erase the budget deficit and try to bring down the national debt.

The OECD had criticised the government’s austerity plans saying they were too rapid and could impact negatively on growth and the poor, however, the government appears to be going ahead with the cuts believing they are in the long-term interests of the economy.

JPY

The yen traded lower in the Asian session versus the dollar some 0.14% lower than Wednesday’s close. Currently the yen is trading at 124.47 per dollar midway through the New York session.

Today the Bank of Japan’s Governor Kuroda said the currency reflects Japan’s real economic fundamentals. He added that price stability is a goal of the Japanese central bank. But some economists and politicians have expressed worries of the drawbacks of a much weaker yen as it could outway benefits to exporters.

Investors are keen to monitor Japan’s leading as well as coincident indices data scheduled for release tomorrow.



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