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    Dollar rises after Yellen says rate hike this year

    USD

    The dollar rose on Monday – still boosted by Friday’s higher-than-expected Core CPI and commentary from Fed President Janet Yellen, in which she virtually guaranteed a rate hike this year – as long as data performs as she expects.

    There was not very much news from the U.S as it was Memorial Day, a public holiday, however, a non-voting member of the Fed, Lorretta Mester spoke in Iceland. Her comments were, on the whole quite hawkish, saying that “If the data comes in according to my forecasts then it is near where we are going to be wanting to raise rates.” She also said she would go into the June meeting with an “open mind”, and that the next round of employment data could be critical in deciding when she would want to see a hike.

    EUR

    The euro fell on Monday as a result of growing concerns about Greece defaulting, and following municipal elections in Spain, which saw Prime Minister Rajoy’s Partido Popular lose its majority, and the left-leaning, anti-austerity party Podemos, gaining more power.

    It is feared that the increase in support for the left, could lead to a tax and spend agenda and more indebtedness. There are also concerns it could lead Spain down a similar radical path to that chosen by Greece, which voted in the Tsipras’s Syriza, and has since been unable to gain a bailout deal.

    Comments from the Greek interior minister over the weekend sparked a sell-off in European bourses after he said that the country could not afford its 1.6bn of June repayments to the IMF without the help of bailout money. Given the continued impasse in negotiations between Greece and the rest of the E.U such a deal still seems far off, and unless negotiators can bridge the divide the country could be heading towards a default.

    GBP

    The pound strengthened on Monday as the effect of recent higher-than-expected Retail Sales data continued to filter through. The data had shown a rise of 1.0% above estimates in April, possibly indicating that consumers had been spending more after a slow start to the year.

    Central bank rhetoric has also been quite hawkish, with Carney and others saying that the next policy move would most likely be an increase in rates, not the other way around. Expectations are currently for a policy move early next year.

    Inflation, however, remains very low, with recent data showing the first signs of deflation for over 20 years. Policy-makers, have dismissed the figures saying they only reflect a fall in the price of oil and food, due to discounting in global commodity markets, rather than deflation in the main economy, however, they have raised concerns the country might be entering a period of Japanese style moribund long-term price growth.

    JPY

    The yen registered a slight softening on Monday following the release of Japanese trade balance data and in the absence of trading in London and New York closed for a holiday.

    Japan’s trade balance confirmed a stronger than expected performance coming in at 8.0% yoy rise against 6.0% anticipated keeping the deficit to a modest 53.4bn yen. this surprised economists who were expecting a larger deficit of 351.1bn yen after registering a revised surplus of 227.4bn yen the prior month.

    The other side of the trade equation however, is more concerning. Imports fell more-than-expected down 4.2% yoy compared to expectations for a 1.5% decline. while this is a significant improvement over the prior month’s 14.5% yoy decline, it still highlights some weakness in Japanese domestic demand.

    The BOJ’s Governor Kuroda said in Parliament this morning that he would not hesitate to adjust policy to hit the target and that the central bank is not monetizing debt with bond purchases under QQE.

    USD

    The dollar rose on Monday – still boosted by Friday’s higher-than-expected Core CPI and commentary from Fed President Janet Yellen, in which she virtually guaranteed a rate hike this year – as long as data performs as she expects.

    There was not very much news from the U.S as it was Memorial Day, a public holiday, however, a non-voting member of the Fed, Lorretta Mester spoke in Iceland. Her comments were, on the whole quite hawkish, saying that “If the data comes in according to my forecasts then it is near where we are going to be wanting to raise rates.” She also said she would go into the June meeting with an “open mind”, and that the next round of employment data could be critical in deciding when she would want to see a hike.

    EUR

    The euro fell on Monday as a result of growing concerns about Greece defaulting, and following municipal elections in Spain, which saw Prime Minister Rajoy’s Partido Popular lose its majority, and the left-leaning, anti-austerity party Podemos, gaining more power.

    It is feared that the increase in support for the left, could lead to a tax and spend agenda and more indebtedness. There are also concerns it could lead Spain down a similar radical path to that chosen by Greece, which voted in the Tsipras’s Syriza, and has since been unable to gain a bailout deal.

    Comments from the Greek interior minister over the weekend sparked a sell-off in European bourses after he said that the country could not afford its 1.6bn of June repayments to the IMF without the help of bailout money. Given the continued impasse in negotiations between Greece and the rest of the E.U such a deal still seems far off, and unless negotiators can bridge the divide the country could be heading towards a default.

    GBP

    The pound strengthened on Monday as the effect of recent higher-than-expected Retail Sales data continued to filter through. The data had shown a rise of 1.0% above estimates in April, possibly indicating that consumers had been spending more after a slow start to the year.

    Central bank rhetoric has also been quite hawkish, with Carney and others saying that the next policy move would most likely be an increase in rates, not the other way around. Expectations are currently for a policy move early next year.

    Inflation, however, remains very low, with recent data showing the first signs of deflation for over 20 years. Policy-makers, have dismissed the figures saying they only reflect a fall in the price of oil and food, due to discounting in global commodity markets, rather than deflation in the main economy, however, they have raised concerns the country might be entering a period of Japanese style moribund long-term price growth.

    JPY

    The yen registered a slight softening on Monday following the release of Japanese trade balance data and in the absence of trading in London and New York closed for a holiday.

    Japan’s trade balance confirmed a stronger than expected performance coming in at 8.0% yoy rise against 6.0% anticipated keeping the deficit to a modest 53.4bn yen. this surprised economists who were expecting a larger deficit of 351.1bn yen after registering a revised surplus of 227.4bn yen the prior month.

    The other side of the trade equation however, is more concerning. Imports fell more-than-expected down 4.2% yoy compared to expectations for a 1.5% decline. while this is a significant improvement over the prior month’s 14.5% yoy decline, it still highlights some weakness in Japanese domestic demand.

    The BOJ’s Governor Kuroda said in Parliament this morning that he would not hesitate to adjust policy to hit the target and that the central bank is not monetizing debt with bond purchases under QQE.


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