Important calendar events
The dollar rallied last week and the dollar index rose from 102.1 to the 102.8 level at the end of the week. US Treasury yields also gained strength last week on increased Fed rate hike expectations, with the US 10-year bond yielding 3.75% on Friday.
The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%.
The Fed has signaled that its tightening cycle is not over yet and that its peak rate might be higher than anticipated. The purpose of suspending rate hikes is to give policymakers time to assess the pace of cooling inflation. Many economists believe that the Fed may resume rate hikes as early as July if inflation remains sticky. The Fed has warned that additional firming may be appropriate.
Fed Chair Jerome Powell delivered his much-anticipated testimony about the Semi-Annual Monetary Policy Report before the House Financial Services Committee last week. His testimony came in two parts and was delivered on Wednesday and Thursday. Powell’s speech on Wednesday had hawkish undertones, pointing to further rate hikes up ahead. Powell stated that inflation still has a long way to go, increasing the odds of another rate hike in July’s meeting. Powell resumed his testimony on Thursday along the same lines, stressing the need to bring US inflation down. Powell said on Thursday that a strong majority of FOMC members feel that interest rates should go up further and hinted at the possibility of two more rate hikes.
On the data front, US economic activity indicators last week were mixed. Flash Manufacturing PMI data dropped to 46.3 in June from 48.4 in May against the 48.5 forecast. Flash Services PMI also declined but remained above the threshold of 50 denoting industry expansion. US Services PMI dropped to 54.1 in June from 54.9 in May versus the 54.0 forecasts. US Building Permits and Housing Starts for May rose beyond expectations, indicating growth in the construction sector.
US Headline inflation dropped sharply to 4.0% year-on-year in May, from 4.9% in April. US Inflation cooled more than expected in May, as markets were anticipating a 4.1% print. Core CPI, on the other hand, which excludes food and energy, remained sticky at 0.4% every month and 5.3% on an annual basis. US headline inflation dropped to its lowest point since March 2021 after 12 consecutive months of declines. Easing inflation enhances the odds of a pause in rate hikes at Wednesday’s Fed meeting.
US Producer Price Index data last week confirmed that US inflation is starting to ease. PPI declined by 0.3% in May, against expectations of a 0.1% drop and a 0.2% growth in April. Annual PPI dropped from 2.3% to 1.1%, while core PPI fell from 3.2% to 2.8% year-on-year, beating estimates of 2.9%.
The US economy expanded by 1.3% in the first year of 2023 against predictions of a 1.1% growth. The preliminary GDP Price Index, which is an important inflation gauge, exceeded expectations, rising by 4.2% in Q1 of 2023 versus the 4.0% anticipated.
The Euro was volatile against the dollar last week, with the EUR/USD pair reaching its highest point this month of 1.100 but retreating to 1.089 at the end of the week. If the EUR/USD pair declines, it may find support at 1.063.
Eurozone fundamentals last week were overall disappointing, putting pressure on the Euro. PMI data for some of the Eurozone’s leading economies and the EU as a whole fell short of expectations, with the manufacturing sectors moving further into contractionary territory. EU Flash Manufacturing PMI data dropped to 43.6 in June from 44.8 in May, against expectations of maintaining the 44.8 level. The index dropped further below the threshold of 50, indicating increased contraction in the sector. EU Flash Services PMI also weakened in June, dropping to 52.4 from 55.1 in May, versus 54.4 expected. The Services sector continued to expand but at a slower pace. German and French PMI data followed a similar trend, indicating an economic slowdown in the Eurozone. German PPI data last week showed that producer price pressures in Germany have eased unexpectedly. German PPI dropped by 1.4% in May, against expectations of a 0.7% decline and a 0.3% growth in April.
The ECB raised interest rates by 25 bp at its policy meeting in June, bringing its main refinancing rate to 4.00%. The ECB has signaled that further rate hikes are required as inflationary pressures in the EU remain high. The ECB revised upwards its inflation forecasts for 2023, 2024, and 2025 by one-tenth of a percent, to 5.4%, 3.0%, and 2.2%, respectively. Higher inflation projections raised expectations for additional monetary tightening.
ECB President Christine Lagarde delivered a hawkish press conference following the policy meeting, pointing to further rate hikes. Lagarde hinted that another rate hike in July is likely as inflation in the Eurozone is sticky. Lagarde’s comments point to further rate hikes up ahead, while the US Fed has signaled a pause in rate hikes.
Headline inflation in the Eurozone cooled to 6.1% year-on-year in May from 7.0% in April, beating expectations of 6.3%. Core Inflation, which excludes food and energy, also slowed to 5.3% on an annual basis in May versus 5.6% in April and 5.5% forecast. The latest inflation print is showing that the ECB’s efforts to bring inflation down are paying off, but it will likely not be sufficient to induce the central bank to abandon its hawkish policy just yet.
GDP data for the first quarter of the year showed that the Eurozone is technically entering a recession. Revised GDP showed a contraction of 0.1% for Q1 of 2023, in contrast to the Flash GDP data released earlier which showed an expansion of 0.1%. Deteriorating economic conditions in the Eurozone may force the ECB to rethink its hawkish monetary policy.
The Sterling dropped last week after the BOE raised interest rates by 50 bps, with GBP/USD closing near 1.271 on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.285, while support may be found near 1.248.
The BOE raised interest rates by 50 basis points in an unexpected move on Thursday, bringing the bank rate to 5.0%. British policy members voted 7-2 to raise the bank’s interest rate to its highest level since 2008, with two of its members voting to keep rates at 4.5%. Markets were anticipating a 25-basis point rate hike this week, and the Sterling rose sharply after the rating announcement but pared gains later in the day.
Sticky inflation in the UK is putting pressure on BOE policymakers to increase interest rates. The MPC warned that if price pressures remain persistent, further tightening would be required. BOE Governor Andrew Bailey warned that inflation is taking a lot longer to come down than expected. Bailey also stressed after the policy meeting that unsustainable wage rises were largely responsible for the 50-bp rate hike. Labor shortages in the UK have pushed up wage growth, increasing inflationary pressures.
The BOE is expected to continue to increase interest rates in the coming months as it fights to bring inflation down. The BOE has been following an aggressively hawkish monetary policy, aiming to bring inflation down. As the US has paused rate hikes, BOE interest rates are now almost on par with Fed rates, boosting the Sterling.
UK Flash Manufacturing and Services PMI data released last week both fell short of expectations, putting pressure on the Sterling. The manufacturing sector dropped further into contractionary territory in June. Manufacturing PMI sank to 46.2 from 47.1 against more optimistic estimates of 46.9. Services PMI remained above the threshold of 50 in June, denoting industry expansion. However, June’s print of 53.7 was lower than the estimated 54.8. Services PMI dropped sharply in June from a 55.2 print in May indicating that growth in the service sector is declining.
Headline inflation in the UK remained unchanged at 8.7% year-on-year in May according to CPI data released on Wednesday. UK inflation remains sticky, exceeding expectations of a drop to 8.4%. Core CPI, which excludes food and energy, was also hotter than anticipated in May. Core CPI rose to 7.1% annually from 6.8% in April, versus 6.8% expected. This is much higher than the BOE’s goal of 2% and public confidence in the BOE’s efforts to curb inflation has fallen to its lowest level on record.
Britain’s economy expanded by 0.2% month-on-month in April after a contraction of 0.3% in March. GDP grew by 0.1% for the 3-month figure to April pointing to slow growth, and cooling recession concerns.
The Yen retreated against the dollar last week and USD/JPY touched 144, its highest level since November 2022. If the USD/JPY pair declines, it may find support near 138.7. If the pair climbs, it may find resistance at 145.
The Yen has been retreating in the past few weeks, weighed down by the BOJ’s persistently dovish policy. Japanese authorities, however, have stressed that they are monitoring the Yen’s decline and may intervene to boost the currency against excessive short-selling.
The BOJ maintained its ultra-accommodating monetary policy last week and the Yen retreated after the BOJ policy meeting. The BOJ held its short-term interest rate target steady at -0.10% and kept its yield curve control program unchanged. The BOJ signaled it is in no rush to change its dovish stance despite rising inflation rates.
BOJ Governor Kazuo Ueda stated after the meeting that even though price pressures are expected to grow over the next few months, there is high uncertainty about next year's wage growth. Ueda also stressed that more time is needed until the bank’s 2% inflation target became sustainable.
National Core CPI dropped to 3.2% in June from 3.4% in May. June’s print exceeded expectations of 3.1%, indicating that inflation in Japan continues to rise contrary to BOJ’s expectations. Inflation in Japan remains steadily above the BOJ’s 2% target, putting pressure on businesses and households.
Flash Manufacturing PMI data released last week for Japan fell short of expectations. The manufacturing sector entered contractionary territory in June, with a 49.8 point, dropping sharply from May’s 50.6 reading. Markets were anticipating that the manufacturing sector would continue to expand, even at a slower pace, with a 50.2 print expected in June.
Final GDP data for the first quarter of the year released last week showed that the Japanese economy expanded by 0.7%, against a preliminary GDP print of 0.4%. The GDP data exceeded expectations, alleviating recession concerns for Japan. The final GDP Price Index printed showed a 2.0% annual expansion, versus 1.2% the previous quarter. Japan’s economic recovery increases the odds of a hawkish pivot in BOJ’s monetary policy.
Gold prices dipped last week, retreating to the $1,920 per ounce level. If gold prices increase, resistance may be encountered near $1,970 per ounce, while if gold prices decline, support may be found near $1,900 per ounce.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar rallied last week, and the dollar index rose from 102.1 to the 102.8 level at the end of the week. US Treasury yields also gained strength last week on increased Fed rate hike expectations, with the US 10-year bond yielding 3.75% on Friday.
Gold prices retreated last week, weighed down by renewed Fed rate hike expectations after Fed Chair Powell’s hawkish testimony. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise.
Fed Chair Jerome Powell delivered his much-anticipated testimony about the Semi-Annual Monetary Policy Report before the House Financial Services Committee last week. His testimony came in two parts and was delivered on Wednesday and Thursday. Powell’s speech on Wednesday had hawkish undertones, pointing to further rate hikes up ahead. Powell stated that inflation still has a long way to go, increasing the odds of another rate hike in July’s meeting. Powell resumed his testimony on Thursday along the same lines, stressing the need to bring US inflation down. Power said on Thursday that a strong majority of FOMC members feel that interest rates should go up further and hinted at the possibility of two more rate hikes.
The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. The Fed has signaled that its tightening cycle is not over yet and that its peak rate might be higher than anticipated. Expectations of additional monetary tightening boost the dollar, driving gold prices down.
Oil prices were volatile last week, with WTI price climbing to $72.5 per barrel mid-week but retreating towards the end of the week, closing near $69.3 per barrel on Friday. If the WTI price declines, it may encounter support near $66.7 per barrel, while resistance may be found near $74.3 per barrel.
The U.S. Federal Reserve kept its interest rate steady at its June policy meeting for the first time in well over a year. Fed officials have voted to keep the central bank’s interest rate at a target range of 5.00% to 5.25%. The Fed has signaled, however, that its tightening cycle is not over yet and that its peak rate might be higher than anticipated.
Fed Chair Jerome Powell delivered his much-anticipated testimony about the Semi-Annual Monetary Policy Report before the House Financial Services Committee last week. His testimony came in two parts and was delivered on Wednesday and Thursday. Powell’s speech on Wednesday had hawkish undertones, pointing to further rate hikes up ahead. Powell stated that inflation still has a long way to go, increasing the odds of another rate hike in July’s meeting. Powell resumed his testimony on Thursday along the same lines, stressing the need to bring US inflation down. Power said on Thursday that a strong majority of FOMC members feel that interest rates should go up further and hinted at the possibility of two more rate hikes. Expectations of additional monetary tightening reduce oil demand expectations, putting pressure on oil prices.
Global economic concerns have been weighing oil prices down, raising concerns about further oil production cuts. OPEC+ members have opted to keep production cuts unchanged for the remainder of 2023. Saudi Arabia, on the other hand, will cut production by an additional one million barrels per day, starting in July for a month that can be extended. This will reduce Saudi Arabian production to 9 million barrels per day.
OPEC output cuts, however, have been offset by a deterioration in China’s economic outlook. Uncertainty over China’s economic recovery put a cap on oil prices last week. China is the world’s largest importer and signs of growing demand provided support for oil prices. Recent economic data for China were underwhelming, with growth in industrial output and retail sales slowing from April. China's central bank lowered short-term borrowing costs to assist the country’s economic recovery last week, but the boost to oil prices was short-lived. The weaker Chinese oil demand outlook has put pressure on oil prices.
Crypto markets surged last week on reports that large financial services institutions have announced major crypto initiatives. BlackRock, the largest asset manager in the world applied what would be the first-ever spot bitcoin ETF in the U.S. In addition, Crypto exchange EDX Markets, which is backed by Citadel, Fidelity, and Schwab, launched operations on Tuesday. Renewed interest in the crypto industry has helped to offset the negative news from Binance and Coinbase, fuelling a cryptocurrency rally last week.
The U.S. Federal Reserve kept its interest rate steady at its June meeting to a target range of 5.00% to 5.25%. The Fed signaled, however, that its tightening cycle is not over yet and that its peak rate might be higher than anticipated.
Fed Chair Jerome Powell delivered his much-anticipated testimony about the Semi-Annual Monetary Policy Report before the House Financial Services Committee last week. His testimony came in two parts and was delivered on Wednesday and Thursday. Powell’s speech on Wednesday had hawkish undertones, pointing to further rate hikes up ahead. Powell stated that inflation still has a long way to go, increasing the odds of another rate hike in July’s meeting. Powell resumed his testimony on Thursday along the same lines, stressing the need to bring US inflation down. Power said on Thursday that a strong majority of FOMC members feel that interest rates should go up further and hinted at the possibility of two more rate hikes. Risk sentiment sank as Fed showed signs of maintaining its hawkish stance, halting the rally of cryptocurrencies.
Bitcoin price surged last week, testing the $31,000 level resistance over the weekend. If the BTC price declines, support can be found near $24,800, while resistance may be encountered near $31,000.
Ethereum price also gained strength last week, touching $1,920 during the weekend. If Ethereum's price declines, it may encounter support near $1,630, while if it increases, resistance may be encountered near $1,940.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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