The US dollar consolidated against all the major currencies except for the Canadian dollar, and fell to a 24 year low against the Australian dollar as the Reserve Bank of Australia’s meeting minutes highlighted upside inflationary risks. The news also led the New Zealand dollar to climb against the greenback to toward 0.7750, with rising commodity prices adding to the mix as oil futures rose just shy of $130/bbl. On the other side of the spectrum, the Swiss franc racked up the biggest gains against the US dollar as investors curbed their risk appetite, with the Japanese yen following behind as the pair fell to 103.50. Hawkish sentiment for Euro and British pound pushed the currencies higher against the US dollar, and lifted the pairs to trade near 1.5650 and 1.9700, respectively.
A speech by Fed Vice Chairman Donald Kohn failed to support the US dollar as he judged the Fed’s monetary policy “to be appropriately calibrated,” suggesting that the Fed will hold the benchmark interest rate at 2.00 percent in June. On the economic front, fresh economic data spurred speculation that the US may fall into stagflation as mounting inflationary pressures grip the economy amid slowing activity. The headline figure for the Producer Price Index slowed to 6.5 percent from 6.9 percent on a yearly basis, while the core measure unexpectedly jumped to 3.0 percent from 2.7 percent –the biggest yearly increase since 1991.
The stock markets lost steam as inflationary concerns pressed on investors, with Home Depot adding to the mix as they posted a 66 percent drop in profits. As a result, the DJIA plunged 199.48 points to 12,828.68 points, with 28 of the 30 components declining. Among the broader indices, the S&P500 shaved 13.23 points to hold up at 1,413.40 points, amid 174 stocks hitting a new 52 week high.
Falling stock prices heightened the appeal of US Treasuries, and led many risk adverse investors to seek the safe haven of risk free bonds. As a result, the benchmark 10-Year yield dropped to 3.784 percent from 3.835, while the 2-Year yield plunged to 2.323 percent from 2.402 percent.
Looking ahead, our focus will start with the Bank of England Minutes at 8:30 GMT, and will shift to the Canadian Consumer Price Index at 11:00GMT. At 12:30 GMT, our focus will turn to the Canadian Leading Indicators Index, with the Fed’s Minutes release at 18:00 GMT concluding the slew of event risks for tomorrow.