In the early stages of yesterday, it looked like the dollar was not going to be stopped by all the "skip" talk ahead of the June FOMC meeting. But that ultimately took its toll on dollar sentiment as Fed policymaker Harker doubled-down on skipping a rate hike next month here, alongside some slightly softer wages data from yesterday.
USD/JPY posted its fourth straight daily decline on the week, falling below 139.00 while EUR/USD pushed up to 1.0760 in a break above its key hourly moving averages for the first time in four weeks.
Meanwhile, the likes of the aussie and kiwi are able to breathe a sigh of relief after posting strong rebounds at 0.6500 and 0.6000 respectively against the greenback. AUD/USD and NZD/USD are both trading nearly 100 pips higher than the key support levels as we get towards the final stretch this week.
Looking at Fed pricing, traders are now seeing roughly 71% odds of the Fed not hiking rates in June. And when you look at the curve in Fed funds futures, it has shown a drop in the past week but still holding much higher than what we saw last month (when markets were still considering three rate cuts by year-end):
So, what's next for the dollar? Has the latest run finally reached its peak?
That is certainly plausible especially after the somewhat coordinated messaging from Fed policymakers this week. That tees up downside risks heading into the US jobs report later today.
The narrative now is that even with a decent set of numbers, the Fed is still going to pause and reassess the situation again in a month's time. However, if the report is a poor or soft one, that will encourage policymakers to perhaps have more conviction to stay on the sidelines or maybe even start talking more about a peak in rates.
In other words, it's all about measuring the appetite and strength of the Fed pivot now.
As a reminder, the Fed blackout period begins tomorrow and while there are no scheduled speakers today, there might be some last-minute commentary after the data to sort of provide a final hint for markets to work with. But if Harker's remarks are the last takeaway instead, it is hard to see the dollar scale back to recent highs again especially if today's data supports his argument to "skip".
