Dollar Gains as Dudley Comments Seen Signaling Fed's Resolve

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  • Treasury yields support dollar as traders await other cues
  • Greenback advances 0.4 percent, gains against all G-10 peers

The dollar hit session highs late in the day after gaining support from hawkish comments by New York Federal Reserve President William Dudley and a rise in Treasury yields.

The greenback rose about 0.4 percent after Dudley said he is confident that the economic expansion has a ways to run and that a strong labor market will eventually trigger a rebound in inflation. Prior to Dudley’s remarks, trading flows had been very muted with most major currency pairs trapped in tight ranges that were ripe for breaking. Market focus may remain on Fed officials Tuesday, with a trio of speakers headlined by Vice Chairman Stanley Fischer in Amsterdam.

  • Dudley’s comments came less than a week after the Fed raised rates and signaled that another rate hike this year is likely. Dudley has never dissented on a Fed decision and it’s thought that his opinions hew closely to those of Chair Yellen. He’s the first of several Fed officials scheduled to speak this week
  • Traders will eye remarks from the other speakers to try and gauge the timing of the next rate hike while also seeking fresh insight into potential steps related to the central bank’s plan to slowly unwind its balance sheet
    • While Dudley’s comments reinforced the Fed’s commitment to normalizing the balance sheet, the Fed still has “a lot to explain about how it sees the economy and why it’s not concerned about the recent soft data,” said Credit Agricole foreign-exchange strategist Vassili Serebriakov, who sees the dollar’s gain as a short-term rally
  • The dollar rose against all of its G-10 peers and was also up against a majority of emerging-market peers, paced by a gain of as much as 1.9% against the South African rand. The rand fell after the country’s graft ombudsman proposed that the central bank shift its mandate to focus on growth rather than inflation, raising concerns about the central bank’s independence
    • The Canadian dollar was most resilient among G-10 peers against the USD, with the greenback up less than 0.1% against the CAD, despite a fresh decline in WTI oil
  • A victory for French President Emmanuel Macron’s party in weekend parliamentary elections did little to underpin the euro. Macron’s Republic on the Move and its allies won 350 seats in an election marked by low voter turnout
  • EUR/USD fell to a fresh low for the session at 1.1143 as UST yields rose. The shared currency remains in recently familiar territory overall while remaining above technical support from Friday’s low at 1.1139. Bids are positioned under 1.1140 and also below 1.1110, though stop-loss sell orders are noted under 1.1100
  • USD/JPY rose to a fresh high of 111.60, also tracking a move higher in the 10-year UST yield. The USD hurdled technical resistance from the Friday high at 111.42 as the pair again signals its sensitivity to yield differentials between the U.S. and Japan. Offers to sell USD at 111.50/55 were filled, exposing technical resistance at the June 2 high 111.71 and the 100-DMA at ~111.87
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