Dollar sentiment softens despite GDP upgrade

Durable goods orders fell 0.7% in April. Personal consumption expenditures price index, Federal Reserve’s preferred gauge of inflation, declined to 1.7% in April from 1.9% in March. The core PCE index though recorded a 0.2% rise after 0.1% decline the previous month. At the same time on the positive note both the personal income and spending rose 0.4% from 0.2% and 0.3% increase in March respectively. And the US Q1 GDP second estimate was revised upward to 1.2% from sluggish 0.7% advance estimate. Furthermore, May consumer sentiment by University of Michigan inched up to 97.1 from 97. However an additional negative was the 2.3% decline in existing home sales in April due to low inventory. The Fed minutes indicated the central bank plans reducing the size of its Treasurys holdings. Minutes from the May meeting of the Federal Open Market Committee showed Fed officials plan to reduce the Fed’s $4.5 trillion balance sheet by gradually halting the reinvestment of principal from maturing securities. The minutes sounded cautious about the timing of next rate hike stating FOMC members agreed to await additional evidence that the recent slowing in the pace of economic activity had been transitory. As is evident from the Sentiment table, sentiment improved for all major currencies except for Japanese yen and British Pound. And the euro and Australian dollar remain the two major currencies held net long against the US dollar.

The euro sentiment improved as June Gfk consumer confidence index inched higher while May headline inflation declined to 1.5% from 2% in Germany. The net long euro position rose at about one third of last week’s pace by $1.12bn to $10.18bn. Investors built the gross longs and cut shorts by 1194 and 6830 contracts respectively. The British Pound sentiment deteriorated as the net short position in British Pound widened $0.44 bn to $2.37bn as investors cut the gross longs and built shorts by 3592 and 2199 contracts respectively. The bearish Japanese yen sentiment intensified slightly despite an 0.1% inflation rise on month in April following a 0.1% decline in March and pick up in retail sales to 1.4% on month after 0.2% growth in previous month. The net short position in yen widened $0.12bn to $5.9bn. Investors built both the gross longs and shorts by 1484 and 2103 contracts respectively.

The Canadian dollar sentiment showed signs of improvement as the Bank of Canada left interest rate at 0.5% while the March budget balance turned into 10.4 billion Canadian dollars deficit from 1.3 billion surplus in February and first quarter current account deficit rose compared with Q4 2016. The net short Canadian dollar position narrowed $44 million to $7.3bn. Investors cut both the gross longs and shorts. The bullish Australian dollar sentiment didn’t change much with a 4.4% rise in building permits after 10.3% drop in March. The net longs rose by $32 million to $229 million. Investors built the gross longs and covered shorts. The sentiment toward the Swiss franc improved despite a decline in KOF Swiss Economic Institute leading indicators for May. The net shorts narrowed by $0.16bn to $2.37bn. Investors built both the gross longs and shorts.