U.S. Dollar Making a Recovery on Hawkish Fed Speakers
The U.S. dollar is showing signs of a correction after a steady lineup
of hawkish Fed speakers yesterday from Harker, Williams and Lacker and
were increasing expectations for a June rate hike.
San Francisco Fed President Williams's address was regarded as the most important Fed communication this week. He explained yesterday that the U.S. economy is going quite well, but again repeated that global growth is holding back the U.S. economy and said that two to three US interest-rate hikes this year would be 'reasonable' while it does not matter whether Fed raises rates in April, June or July.
However, Richmond Fed President Lacker also remains one of the most hawkish FOMC members, speaking yesterday as well, he was probably even more hawkish that Williams when he explained that a rapid firming in core inflation and well-anchored inflation expectations are reason to raise federal funds rate while suggesting that inflation is returning to 2% faster than expected and that downward pressure on inflation from dollar is 'plausibly behind us'. He added that the U.S. labor market is strong and growing stronger while the U.S. outlook has not changed materially since December and that these are "a persuasive case for increasing the target range for the federal funds rate".
As a result, the US dollar has been well bid in Europe and in the U.S. despite strong performances in metals, such as copper rallying over 10 cents from 2.0728 to 2.1790 over the last two days and oil remaining within a strong recovery at the highest levels for 2016, beating Feb highs yesterday, through the 200 dma at $40.55bbls and posting fresh highs today of $42.45bbls.
In respect to the Yen, the U.S. dollar is also pushing higher against the Japanese yen. Significantly, the seven-day gains that the Yen has made have been snapped and USD/JPY is back on the 109 level targeting 110.00 having been testing the mid-way point of 109.00. This will be a delight to the BoJ where otherwise, verbal intervention had been at play supporting the bid. However, the rally might not be able to hold up based on the negative fundamentals in the Japanese economy as seen in the decline in Japanese producer prices (-3.8% in March from -3.4% in February), provoking comments from government advisers calling for more fiscal and monetary action.