US: Decline in yields
The past month was successful enough for the greenback: US currency strengthened against most of its peers, with the exception of Canadian and Australian dollars and Japanese yen. Minutes of the last FOMC meeting showed that the regulator expects inflation to remain low. According to the Federal Reserve, it’s still necessary to keep stimulating economic activity and labor market. US monetary authorities continue tapering QE and point out that there’s a need to develop an “exit strategy” as excessive stimulus could create medium-term inflation risks. However, the economic data remain mixed and for now the policymakers don’t plan to lift up interest rates.
On the one hand, the number of employed in the US made the biggest increase in 4 years in April (NFP was 288K), while the unemployment rate declined to 6.3%. On the other hand, US economy slid by 1% in Q1 – this is the first quarterly decline since 2009. Wage growth remains low. Many economists think that the weak economic results of the first 3 months are due to bad weather and won’t constitute a serious impact on the Fed’s policy. The next meeting of the US central bank will take place on June 18. At the same time, with such economic background the expectations that American economic growth will be very resilient may not fulfill. The 10-year Treasury yields fell from the levels above 3% in early 2014 below 2.5%. This reflects risks for US economy and puts a break on the USD appreciation.
US dollar index (DXY) – Change in May
To Read the Entire Report Please Click on the pdf File Below