US dollar soars through 105 DXY on risk-off flows

Here is what you need to know for the day ahead, Thursday June 30:

The forex space was driven by comments from the Federal Reserve’s Chairman, Jerome Powell. He explained that there is a risk the US central bank’s interest rate hikes will slow the economy too much. He added that the bigger risk, however, is persistent inflation. Powell made these comments at a European Central Bank conference. 

Investors continue to worry that an aggressive push by the Fed to dampen inflation will drag the economy into a recession and that has put a bid back into the safe-haven US dollar, sinking all other ships. Inflation fears are being fanned further by oil prices, which extended their rise into the fourth day.

The dollar index (DXY), which measures the greenback against six counterparts, rallied to a high of 105.149 from a low of 104.356 as investors sought safety in US assets as stocks declined globally due to the mounting risk of a recession. Nevertheless, the US dollar index stayed below the two-decade high of 105.79 pinged two weeks ago.

The euro fell to 1.0435 from a high of 1.0535 with EU consumer confidence slipping further below the breakeven point in June. Markets are looking to the EU Unemployment on Thursday and inflation on Friday. These data points will be key ahead of next month’s July 21 European Central Bank’s monetary policy committee meeting when the central bank is expected to begin its tightening cycle.

GBP/USD also fell, sliding to a low of 1.2105 ahead of UK Gross Domestic Product data that will be released on Thursday. The Northern Ireland protocol noise coupled with the sentiment surrounding the Bank of England are critical features in the outlook for sterling in the near term. The Bank of England is expected to maintain its tightening cycle to clamp down inflation after a 25 basis point increase at the last meeting. However, it will not necessarily have to act “forcefully” to get inflation under control, according to Governor Andrew Bailey who spoke on Wednesday, adding there were signs of an economic slowdown taking hold in Britain.

USD/CAD rallied to a high of 1.2900 ahead of Canada’s GDP which will be released on Thursday. Traders will look ahead to the July 13 interest rate decision from the Bank of Canada where the expectations are for further monetary policy tightening after June’s 50 basis point increase.

USD/JPY was up and down day trading between 135.76 and 137.00 and ended the day in a phase of consolidation in a key area on the hourly chart around 136.60. 

Gold for August delivery closed down US$3.70 to US$1,817.50 per ounce and spot stuck to a narrow range between $1,812 and $1,833 while US bond yields fell, which helped to buoy the non-yeilding precious metal. The yield on the US 10-year note fell to a low of 3.089%. Bitcoin was a touch stronger. Its price now tightly fluctuates around the $20,000 level – support that Bitcoin bulls hope to continue holding. WTI was lower by 2.4% around the Wall Street close even after a report showed an unexpectedly large drop in US inventories last week.

For the day ahead, both the Manufacturing Purchasing Managers Index (PMI) and the official Non-Manufacturing PMI are to be released for China.