USD recovery momentum stalled as Italy’s political situation has stabilised and as the ECB signals it is more likely than not to announce next week that QE will draw to a close by year’s end, points out Richard Franulovich, Research Analyst at Westpac.
Key Quotes
“USD index can potentially trade to 92.50-93.00 near term but hard to see multi-week weakness beyond that given exceptionally strong US cyclical growth conditions. Payrolls growth has resumed a +200k track, average hourly earnings rose an above trend 0.3% in May, job openings held at a record high 4.3% rate and the latest service sector PMIs, already at lofty levels, crept higher still in May. Altogether Q2 growth is running above 3% with some estimates nearer 4%.”
“Fed next week likely to send a resounding signal that policy tightening continues, with greater risks of a hawkish surprise given current strong momentum and comments from influential centrists Brainard and Williams that Fed policy might run above neutral for a period. One caveat: global data surprises are breaking to the positive side from a low base.”
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