Weekly economic commentary: It may be hot outside, but inflation is finally cooling

Wells Fargo Research Team Wells Fargo

Summary

United States: It may be hot outside, but inflation is finally cooling

According to the Federal Reserve's preferred gauge, core inflation cooled to its softest pace in more than three years in May against a backdrop of measured consumer spending and still-strong personal income. Elsewhere, the effect of higher rates remains evident in uninspiring data on capital investment and the housing market.
Next week: Construction Spending (Mon.), ISM Manufacturing (Mon.), Employment (Fri.)

International: Bird food: Some dovish central bank rate holds amid lighter global data week

Although this week's central bank decision lineup was somewhat lighter than last week's, multiple institutions delivered updates to their monetary policy assessments. Sweden's Riksbank delivered a dovish policy rate hold. In Mexico, Banxico held rates steady at 11.00% and offered commentary consistent with our outlook for cautious central bank easing.
Next week: China PMIs (Sun.), Japan Tankan Survey (Mon.), Eurozone CPI (Tue.)

Interest rate watch: QT gradually putting upward pressure on money market rates

The FOMC has left its main policy tool, the federal funds rate, unchanged for nearly a year as it awaits further progress on bringing inflation back down to 2%. However, the Federal Reserve continues to reduce the size of its balance sheet as part of its quantitative tightening (QT) program. Ongoing QT is gradually starting to put upward pressure on money market rates, such as the Secured Overnight Financing Rate (SOFR).

Credit market insights: Strong net worth gains cloud slowing growth in cash

Household net worth climbed to new highs across all wealth cohorts in Q1. Most of household wealth is tied up in relatively illiquid assets such as corporate equities and real estate. How are liquid “cash” assets holding up for households relative to pre-pandemic and over the past year?

Topic of the week: Yen reaches its weakest level against the greenback since 1986

This week, the yen reached its weakest intraday level against the greenback since 1986. The currency's dramatic slide over the past few years has spurred Japan's Ministry of Finance to intervene a couple of times. Will Japan continue to intervene, and how long can it do so?

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.