• Dollar falls ahead of long weekend in US

Global Highlights

Dollar Index – The dollar closed 0.40% lower at 104.68 following the release of the PCE Index – the Fed’s preferred index – which rose at the same pace as April by 6.3% y/y due to energy prices which climbed 35.8%. On another note, personal income expanded 0.5% m/m, also the same pace as in April. However, personal spending grew slower at 0.2% m/m, the lowest growth this year and down from 0.6% in April (cons.: 0.4%). With inflationary pressure still remaining strong despite slower personal spending, we believe the Fed is unlikely to slow down on its rate hike aggressiveness.

US equities & sovereign bonds – Wall Street ended the month of June on a weaker footing as it fell 0.82% to 30,775, S&P 500 dropped 0.88% to 30,775, while the Nasdaq tumbled 1.33% to 11,029. The UST10Y benchmark yield lost 7.6bps to 3.013% while the UST2Y shed 8.5bps to 2.953%, making the yield differential between the two to stand at 5.9bps.

Euro – The euro rose 0.40% to 1.048 partly due to the weaker dollar. Also, the unemployment rate in the Eurozone edged lower to 6.6% in May, a fresh new record, from 6.7% in April and beating market forecast of 6.8%.

British pound – The pound gained 0.45 % to 1.218 also due to the weaker dollar and the readiness of the BoE to further hike interest rates as inflation is expected to hit 11% by end-2022.

Japanese yen – The yen appreciated 0.64% to 135.72. Japan reported its biggest monthly drop in factory output in May at 7.2% m/m (cons. -0.3%) after a 1.5% drop a month earlier as production of items such as cars, electrical and general-purpose machinery fell sharply due to shortages of semiconductors and other parts.

Chinese yuan – The yuan strengthened 0.02% to 6.699 as China’s PMI for manufacturing hit 50.2, the highest since February while non-manufacturing PMI increased to 54.7 in June compared to 47.8 in May.

Korean won – The won was up by a slight 0.04% to 1,298.90 as South Korea aims to increase minimum hourly wage by 5% by next year.

Australian dollar – The Australian dollar climbed 0.33% to 0.690. In line with rises in its own borrowing costs, two of Australia's top home lenders increased fixed-rate home loans, putting additional pressure on the housing market as interest rates rise.

Source: AmInvest Research - 1 Jul 2022