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US Strong Data Streak Continues with Robust Confidence Reading

Andre Lapaine June 15, 2018

The University of Michigan consumer sentiment index’s preliminary reading for June came in higher than expectations at 99.3, yet another piece of economic data from the US that further supports the continued growth of consumer spending and the upward trend of the US economy.

Expectations for the index were for a 98.5 reading. The data follows robust jobless claims and retail sales data released in the US Thursday.

The trade-weighted Dollar Index (DXY) is now around the 94.80 area, unchanged after the data release, but down from its session high of 95.14, its first break above the 95.00 level since July of 2017.

The University of Michigan said consumer sentiment rose in early June due to “consumers’ more favorable assessments of their current financial situation and more favorable views of current buying conditions for household durables.”

The expectations index, in contrast, declined to 87.4, from 89.1 on less favorable prospects for the overall economy, it said.

With the European Central Bank taking a dovish stance just as the US tightens its monetary policy, the EUR/USD pairing is likely vulnerable to further losses in the near future

The Euro-Zone CPI (YoY) and Core CPI for May came in at the expected rate of 1.9% and 1.1% respectfully. The data has had little effect, however, as it comes off the heels of Thursday’s large gain by the US dollar against the euro.

ECB President Mario Draghi’s dovish tone about future ECB rate hikes along with strong US retail sales numbers created a diverging effect for the two currencies, as the EUR/USD pair saw more than 200 pips of movement during Thursday’s trading session. The common currency rebounded somewhat in Friday trading.

In other developments in global currency markets, the Bank of Japan held its current interest rate of -0.1% as expected. The BOJ is staying committed to its ultra-easy monetary policy, as it will also continue to purchase Japan Government Bonds in order to hold the 10-year interest rate at around 0%.

Though Japan seemed to be on pace to hit their 2% inflation target by 2019, there have recently been indications that consumer spending in Japan is stagnating once again.

Bottom Line: Strong University of Michigan consumer sentiment data for June is consistent with the recent spate of robust readings on the US economy, and the greenback looks positioned to continue its push higher against other major currencies in the coming weeks.

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