In recent days the Dollar seems to be following the pattern of trading a little weaker overnight and during the early European session only to then appreciate forcefully later in the day. The Dollar is indeed a little weaker this morning with the Swiss Franc and New Zealand Dollar – which has underperformed other major currencies in the past month – making small gains. This follows the Dollar’s strong gains yesterday to its high since mid-2017, following the release of initial jobless claims data pointing to an increasingly tight US labour market and perhaps more important the Philadelphia Fed manufacturing index.
The index rose from 23.2 in April to 34.4 in May, one of the strongest prints on record since 1980. Based on historical relationships, an average Philly Fed index of 28.8 in April-May points to very strong US GDP growth in Q2 2018 even if a lot could change between now and end-June. The first estimate of Q2 GDP is not due for release until 27 July but if it does come out strong, this could shift market expectations towards three more Federal Reserve rate hikes before year-end (i.e. a hike in June, a hike in September and a hike in December). This could in turn conceivably give the Dollar an extra leg-up, regardless of a fast-moving geopolitical background.
