The Fed funds market is back to nearly-fully pricing in two Fed rate cuts this year.
Yesterday’s dot plot showed the majority of Fed officials now expecting to cut just once this year (down from 3 times in March) but it’s by a margin of 11-8 so it could easily swing. Moreover, Fed Chairman Jerome Powell emphasized that virtually all Fed officials are particularly data dependent.
That’s why the US dollar fell on the release of today’s PPI and initial jobless claims numbers. The data showed PPI down 0.2% in the month compared to a 0.2% rise expected. Initial jobless claims also jumped to 242K from 229K in what could be a sign of layoffs.
However the dollar dip was quickly bought, particularly in USD/JPY ahead of Friday’s BOJ meeting.
USDJPY 10 mins
The reversal today was a mini version of the turnaround yesterday and combined they suggest a market that’s not ready to sell the US dollar. The thinking may be that if the economy is deteriorating in the US — with a 7%-to-GDP fiscal deficit — it will be worse elsewhere.