The U.S. Dollar Index is +1.17% over three days, atypical short-term volatility for the leading safe-haven currency. Friday’s Nonfarm payroll blowout (272k jobs added vs. 180k estimate) shaved nearly a full cut from the implied O/N rate through December. A stubbornly strong labor market, with its accompanying wage inflation and downstream lift to consumer spending limits the Fed’s near-term alternatives on rate policy.
Today is the first day of the FOMC’s 2-day policy meeting which culminates with tomorrow’s rate decision announcement, set for release tomorrow afternoon. No change is expected to the 5.50% overnight target rate with an only 1.3% implied probability of a cut. After this week, the FOMC will have four remaining policy meetings through the end of the year. The highest probability of a cut is 66.1% at the final meeting of the year, December 18th.
Along with the FOMC’s rate decision, tomorrow’s economic calendar also includes the CPI (consumer price inflation) print for May. Yearly CPI is estimated to be 3.4%, matching April’s result. The MoM CPI is forecast to drop to a 0.1% gain, retreating from April’s 0.3%. Monthly CPI has dipped to 0.1% five times since August 2022 and topped out at 0.5% three times over the same period. So, anything between 0.1% and 0.5% will be more of the same.
Today’s primary dollar spot gains vs. the G10/majors: +0.66% vs. MXN, +0.46% vs. NOK and +0.29% vs. EUR. The widest dollar loss is -0.14% vs. JPY.
USDMXN continues to be bid higher following last week’s elections, the Morena party winning the presidency (as expected), winning 372 seats in the lower house (a surprise), and gaining 83 senate seats (a strong showing). Morena needs 86 senate seats for a ‘supermajority’ coalition to enact its desired constitutional reforms. Departing President Obrador is in the process of negotiating with a handful of senators to achieve a supermajority status to leave with incoming president Sheinbaum (Obrador’s political protégé).
