Dollar stays firm in Asian session as supported by comments by Fed officials. Philadelphia Fed president Patrick Harker joined the chorus of hawkish Fedspeaks. He said that "I can easily see the possibility of two or three rate hikes over the remainder of the year." Regard the hot topic of June hike, he said that "if the data comes in and it's not that consistent with my view of the strength in the economy, then I would pause, but otherwise, I think a June rate increase is appropriate." He also noted that "if the economy follows the path I expect it to follow, monetary policy will be overly accommodative by historical standards," and "that will set in motion the possibility of another risk, which is accelerating inflation and the need for aggressive policy actions."
San Francisco Fed president John Williams reiterated his view that FOMC is on track for rate hike in June or July. And, the EU referendum in UK is "a factor in the decision for June obviously because you have an event right after, and we can obviously hold off until July if we wanted." But he emphasized that "of course we could also make a decision to raise rates at a meeting and if later on economic conditions for the U.S. change, we can always move interest rates back down," St. Louis Fed president James Bullard said that "labor markets are relatively tight" and "may put upward pressure on inflation going forward." Meanwhile he criticized that markets' projections were much shallower than Fed's gradual normalization of monetary policy. And what markets are seeing are "almost no normalization. Bullard also noted that the EU referendum in UK next month will not affect FOMC's decision.
Talking about Brexit, a JP Morgan economists warned that in case of "yes" vote to leave EU, "uncertainty would likely broaden as concerns about instability ripple across the economy, affecting households and businesses." And, "this framework suggests the currency would have to fall by 30 percent to make a rate cut look unlikely." According toe their model, unemployment rate could jump to 5.6% while mortgage spreads would widen by 50 basis points. And, UK inflation could rise to as high as 3% by the end of 2017.
A UBS reported noted that the 25bps rate cut by RBA this month "merely returned the 'real cash rate' - when deflated by core CPI - to ~¼%, which is still marginally above its ~flat average since 2013." And they argued that "there has been little interest rate easing in real term". Thus, they forecast RBA to cut interest rate by another 25bps to 1.5%. And, together with 2 hike by Fed this year, AUD/USD would drop back to 0.68 by the end of the year.
On the data front, German ZEW economic sentiment will be the main focus in European session. Germany will also release GDP final. Swiss will release trade balance while UK will release CBI realized sales. US will only release new home sales.