Forex today: expecting a dovish hike to come from the Fed this week?

Forex today was dominated by the theme of a dovish hike to come from the Fed this week.

Markets are increasingly concerned about the state of the US economy and whether the Fed has, in fact, predicted the recovery correctly. Inflation is a concern and rates have been reflecting this in recent weeks. 

Rates and the DXY were mostly steady ahead of Fed tomorrow, with a bearish bias. The 10-year yield was down -0.32% ranging to the downside between 2.1987 - 2.2249. The dollar was ending on the 97 handle down -0.13%. However, we are still down over -5.0% on the year and the yield curve hit a new YTD low as the market sees little evidence that jobs strength has been feeding into wages or prices.

The key takeaways from the session today were as follows:

US PPI Final demand year on year at 2.4% v 2.3 RTS forecast and 2.5% -prev

• Bank of Canada's Poloz said that state cuts have largely done their work
• ECB's Jan Smets said Growth should yield more inflation, but yet to see it
• Germany's Schaeuble said that Draghi's success on debate is harmful
• ECB'S Lautenschlaeger said many banks are a bit too relaxed about hard Brexit
• Macron said that the door of the EU remains open as long as Brexit talks are not over
• Former UK PM Major is "wary" about planned deal with N.Irish party
• Oil prices were higher due to Saudis limiting exports to Asia and US
• The yen was flat with a bullish bias despite the Dow making fresh record highs. Gold was bid as investor's look for a return vs low yields elsewhere. EUR was sideways after heavy German ZEW survey misses. The pound was strong as the Tories and DUP seem to be coming to a deal that the BBC suggested will be finalised tomorrow (Wed, UK), also, UK rates bounce on higher than expected CPI results damaging the cross. 

Canadian rates were higher again with Poloz reaffirming Wilkin’s hawkishness,  USD/CAD dropped to 1.3210 the low. AUD dropped with metals, making lows of 0.7565 while Kiwi consolidated 0.7189/28.

Day ahead in Asia:

Key notes from US session:

• US: Producer Price Index for final demand was unchanged in May    
• France: Macron on track to win majority – Danske Bank 
• BoC’s Poloz: Rates have been ‘extraordinarily low’
• ECB's Smets: Better growth should in theory lead to more inflation
• UK PM May: Had productive talks with N. Ireland's DUP on stable government   
• Gold Intermarket: making a comeback on lower US yields