Dollar Firms on Higher Interest Rates

CURRENCY FUTURES

The U.S. dollar index firmed as traders price in higher interest rates for longer.

German industrial orders unexpectedly declined in April. Industrial orders fell by 0.4% from the previous month on a seasonally and calendar adjusted basis when analysts expected a 3.0% increase.

Retail sales in the euro area remained unchanged in April 2023, following a revised 0.4% decline in March and under market expectations of 0.2% growth.

Euro zone consumers lowered their inflation expectations, according to a European Central Bank survey. Median expectations for inflation over the next 12 months declined to 4.1% in April from 5.0% in March, while for three years ahead they fell to 2.5% from 2.9%.

The Bank of Canada will hold its monetary policy meeting on Wednesday. Financial futures markets anticipate its key interest rate will remain unchanged at 4.50%, although there is a chance the bank could resume interest rate hikes.

The Reserve Bank of Australia unexpectedly raised its cash rate by 25 basis points to 4.1% at its policy meeting today, while keeping the door open for further tightening.

STOCK INDEX FUTURES

Stock index futures are lower.

The Logistics Manager’s Index hit a record low for a third consecutive month of 47.3 in May 2023, which compared to 50.9 in April. The reading pointed to the first contraction in the logistic sector in almost 7 years of history.

Futures continue to overperform the news.

INTEREST RATE MARKET FUTURES

Futures are mixed and remain above major downtrend lines that were broken on the upside early last week.

There are no major Federal Reserve speakers scheduled for today.

Federal Reserve policy limits the extent to which Federal Open Market Committee participants and staff can speak publicly or grant interviews during Federal Reserve’s blackout periods, which start the second Saturday preceding a FOMC meeting and end the Thursday following a meeting, unless otherwise noted. Blackout dates for the upcoming policy meeting are June 3-15.

Financial futures markets are predicting there is a 76% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its June 14 policy meeting, and there is a 24% chance of a 25 basis point increase.

 

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