FX market outlook

FX market outlook

Dollar weakness persists; euro rises above $1.10; oil holds gains.

The dollar index fell to a one week low as the greenback continued to weaken against a basket of currencies, following a series of soft US data recently, as well as domestic politicals. The euro extended its rally, while oil prices held onto recent gains.

The dollar came under pressure yesterday after a surprisingly soft US manufacturing report from the New York Federal Reserve. Meanwhile, an article in the Washington Post that US President Donald Trump divulged highly classified information during his meeting with Russian officials last week, added to the dollar’s weakness. The report raised concerns that political distractions will delay Trump’s growth agenda. The dollar slid against the yen during the Asian session to reach 113.26 after having opened at 113.77.

Broad dollar weakness helped strengthen the euro, which rallied above the key $1.1000 level in late Asian trading, nearing the six-month high hit after a relief rally following the election of Emmanuel Macron as France’s president.

Sterling regained the $1.2900 handle against the dollar. A big risk event for the pound will be today’s UK data on inflation.

The aussie remained above the key $0.7400 against the US dollar, mostly being underpinned by higher commodity prices. The aussie was not impacted much by the release of the minutes of the Reserve Bank of Australia’s (RBA) May meeting, which were similar to the minutes of the April meeting. The RBA noted it had concerns about the domestic labor market. But it was optimistic that core inflation would improve.

Oil prices held onto gains after a strong rally on Monday that was triggered by talk that Russia and Saudi Arabia, the world’s two biggest crude-oil producers, agreed that production cuts should be extended into March 2018. All eyes will be on the May 25 OPEC meeting for an official confirmation of the deal extension. Meanwhile, later today the IEA (International Energy Agency) is set to release its estimates of OPEC production levels in April.

WTI crude rose above the key $49 a barrel on Monday and consolidated around this level in Asian trading today.

Gold remained within sight of a two-week high of $1237.20 an ounce hit on Monday.

The economic calendar for the rest of the day is quite busy. The UK will release CPI data while the Eurozone will publish first quarter GDP figures. Germany’s ZEW report is also on the agenda. From the US, industrial production and housing starts numbers are due later.