Higher Prices Likely for US Dollar

CURRENCY FUTURES

Yesterday the U.S. dollar index advanced to its highest level since early March. The greenback is a little lower today after Federal Reserve Bank of New York President John Williams said in a discussion on Thursday that U.S. monetary policy is “in a good place.”

Us dollar bills flat

Interest rate differential expectations remain favorable for the greenback, especially against the European currencies, since the U.S. economy appears to be holding up relatively well compared to economies in Europe.

Longer term, higher prices are likely for the U.S. dollar and lower prices are likely for all the other major currencies.

Economists see the European Central Bank hiking interest rates one more time to limit inflation. Analysts are divided as to whether the ECB will hike again at its September 14 policy meeting or at the October meeting.

Japan’s economy expanded at a slower rate than initially estimated. The Japanese economy expanded 1.2% quarter-to-quarter in the second quarter, coming in slightly less than market forecasts of a 1.3% increase.

Japanese real wages extended their decline for a 16th consecutive month in July. Inflation-adjusted real wages fell 2.5% in July from a year earlier following a 1.6% decline last month.

Japanese Finance Minister Shunichi Suzuki said on Friday that rapid currency moves are undesirable, and monetary authorities would not rule out any options against excessive price swings in a new warning to investors selling the yen. The U.S. dollar recently touched a 10-month high against close to 148 yen to the U.S. dollar.

STOCK INDEX FUTURES

Stock index futures are mixed.

The 9:00 central time July wholesale inventories report is expected to show a 0.1% decline.

The 2:00 July consumer credit report is anticipated to be up $18.0 billion.

INTEREST RATE MARKET FUTURES

Futures are higher after Lorie Logan of the Federal Reserve said she favors skipping a rate increase at the next meeting.

The Fed is expected to keep its fed funds rate steady this month while the odds for a quarter-point hike later in the year have been increasing this week.

Financial futures markets are predicting there is a 93% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its September 20 policy meeting, and there is a 7% probability of a 25 basis point increase.

However, there is a 40% probability that the FOMC will hike its fed funds rate by 25 basis points at its November 1 policy meeting.

 

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