From her speech, it was clear Fed officials had had their confidence in the US economy shaken by the dramatic slowdown in May hiring. Nonetheless, comments from other Fed members, Bullard and Lockhart, overnight continue to emphasise the Fed’s desires to see two rate hikes this year. This means the bar for the NFP release at the start of July may be set much lower than usual for them to still get a July rate hike out.
The DXY dollar index managed minor gains in the overnight session against all of the G10 currencies and regained the 94 handle.
The collapse in the US dollar has seen commodity prices surge. Oil reached a 10-month high overnight, iron ore gained 2.1%, copper 0.2% and gold 0.1%. These moves have been mirrored in agricultural commodities as well, and all of this points to building global inflation. The Fed has been at pains to emphasise their concerns over a blowout in inflation if rates are left too low for too long, and this validates why they may still hike rates even when the economy still looks quite weak. These concerns underpin the case for why the Fed wants to see two rate hikes this year, and why even an NFP of 100,000 or better in July may still be enough to see a July rate hike.