The US dollar at the lows of the day as Treasury yields sink on a soft reading in the April manufacturing survey from the Philadelphia Fed. The headli
The US dollar at the lows of the day as Treasury yields sink on a soft reading in the April manufacturing survey from the Philadelphia Fed. The headline dropped to -31.3 from -23.2 but what got the most attention was the inflation side.
- Prices paid +8.2 vs +23.5 prior
- Prices received index -3.3 vs +7.7 prior
Prices received were the lowest since May 2020 and highlight that problematic inflation is falling into the rearview mirror. The market continues to see a 90% chance of a 25 bps Fed hike on May 3 but that could be the peak, with only a moderate chance of another hike beyond that.
However we’re going to hear from the Fed’s Waller against today at noon ET followed by Mester 20 minutes later. Both are hawks and will push the idea of continuing to hike, or at least staying at restrictive levels for longer.
Contrast that with data increasingly showing that inflation is coming under control and economic activity is slowing. The market is worried that the result will be an unnecessary recession that will eventually force the Fed to slash rates, as it falls behind the curve once again.
After the data, EUR/USD hit a session high at 1.0984, up 30 pips on the day. It’s since trimmed that gain as it struggles to get above the key 1.10 level.
EURUSD 10 mins
More broadly, the dollar is also under pressure, including against the commodity currencies. That suggests some unique USD weakness, in part because US 2-year yields have fallen 8.2 bps to 4.18% in the first decline following five days of gains.
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