June 26 2024: The U.S. dollar rose on Wednesday, bolstered by hawkish comments from Federal Reserve officials, while the euro was weighed down by declining consumer confidence.
At 03:35 ET (08:35 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, was up 0.2% at 105.480.
Hawkish Fed Comments Propel Dollar
The dollar gained strength during Tuesday’s session after Fed Governor Michelle Bowman stated that the U.S. central bank will likely keep interest rates steady “for some time” to manage “elevated” inflation. She added that she does not anticipate rate cuts in 2024. Bowman, known for her hawkish stance, emphasized that it is not yet “appropriate” to lower rates and expressed willingness to raise rates further if inflation progress stalls or reverses.
Her remarks followed comments from San Francisco Fed President Mary Daly, who said recent “bumpiness” in inflation has “not inspired confidence” among policymakers, complicating the Fed’s efforts to achieve price stability.
Expectations about the future path of U.S. interest rates have significantly influenced the foreign exchange market, with Fed officials calling for more data indicating a slowdown in inflation before considering rate cuts.
Attention is focused on Friday’s PCE price index data, the Fed’s preferred inflation gauge, which will show whether the recent slowdown in inflation is continuing. However, recent PCE readings have not met expectations, with the latest showing U.S. inflation unexpectedly flat in April. Another such reading could challenge the expectation of imminent rate cuts.
German Consumer Sentiment Declines
EUR/USD fell 0.2% to 1.0696 after data indicated a slight drop in German consumer sentiment for July, ending a four-month streak of increases.
The consumer sentiment index, published by GfK and the Nuremberg Institute for Market Decisions, unexpectedly fell to -21.8 for July from a revised -21.0 in June. This decline adds to other indicators suggesting a challenging outlook for Europe’s largest economy, following recent drops in the Ifo business climate index and the HCOB composite PMI.
The upcoming French elections and political turmoil in France after President Emmanuel Macron’s snap election announcement also pressured the euro.
“Markets appear to be making peace with the prospect of a National Rally victory and parliamentary gridlock, especially after Le Pen’s party attempted to ease market concerns on the fiscal side,” ING analysts noted. “However, investors remain more sensitive to a potential strong performance by the New Popular Front, which recently announced a EUR 25bn spending plan for 2024 and an additional EUR 150bn by 2027, seen as a greater fiscal threat.”
GBP/USD fell 0.1% to 1.2668, with the currency trading in a narrow range as Bank of England policymakers remained quiet ahead of the UK’s July 4 general election.
Yen Nears Intervention Level
In Asia, USD/JPY rose 0.2% to 159.93, approaching the 160 yen level that prompted intervention in May. Government officials reiterated warnings of potential intervention if excessive volatility occurs.
The yen’s recent weakness followed dovish signals from the Bank of Japan during its June meeting.
USD/CNY edged up 0.1% to 7.2667, staying near a seven-month high, following another weak midpoint fix by the People’s Bank of China. Mounting pressure on the yuan, amid trade war concerns with the West, led the PBOC to maintain two consecutive days of weak midpoint fixes.
