As we approach June 2024, it’s hard to believe that half of the year has already passed. However, the market remains uncertain about the Federal Reserve's monetary policy direction, with rate cuts still an open question. The inflation data from February and March showed an uptick, pushing the prospect of rate cuts further away and even raising concerns about potential rate hikes. Although the recently released April inflation data did not continue to rise, which should have alleviated these concerns, most Federal Reserve officials have adopted a cautious stance. They have expressed a lack of confidence in achieving the 2% inflation target in the short term, suggesting that restrictive interest rates might need to be maintained for a longer period. There are no signs of easing in monetary policy. Currently, the interest rate futures market predicts the earliest rate cut could happen in September, but there's only a 50% chance of that happening. It is likely that there will be, at most, one rate cut this year. 

The data released by the United States in May suggests signs of an economic slowdown. In April, non-farm job growth dropped significantly to only 175,000, the unemployment rate rose, wage growth slowed, and both retail sales and consumer confidence indices fell short of expectations. If inflation trends cooperate, the Federal Reserve may consider rate cuts. However, officials are clearly worried about rising prices and may need to observe one or two more months of data before making a judgment. Due to the delay in rate cuts, the dollar index has gradually climbed back to the 105 level. In contrast, the European Central Bank's monetary policy is clearer, with a high chance of a rate cut in June. The Bank of Canada also has a higher likelihood of cutting rates in the short term. Other central banks' actions are less certain, and the forex market will continue to be influenced by inflation developments. The dollar index may continue to operate within the upward channel it started this year, potentially testing 105.60 before any clear rate cut timing is announced. 

The yen surged from the 160 level to 152 against the dollar, likely due to central bank intervention. Although the Bank of Japan hinted at a possible rate hike this year, the yen remains weak, currently around the 157 level as of writing. The local inflation trend is relatively volatile, and the central bank's policy adjustments are cautious. Furthermore, with the timing and frequency of US rate cuts potentially falling short of expectations, carry trades have not significantly contracted, which does not favor the yen's performance. Watch for resistance at 158 yen to the dollar, and consider small bets on the yen rebounding.

Patrick Law

Chief Operating Officer of Hantec Group