Important calendar events
The dollar rallied on Thursday and the dollar index rose to the 103.4 level. US Treasury yields surged, with the US 10-year bond yielding 3.85%.
Stronger-than-expected U.S. economic data boosted the dollar on Thursday. Final GDP data on Thursday showed that the US economy expanded by 2.0% in the first quarter of the year. Preliminary GDP data indicated a 1.3% expansion in the previous quarter, but the final print exceeded expectations. Final GDP Price Index on Thursday dropped slightly below expectations, with a 4.1% print for the first quarter of 2023, versus 4.2% anticipated. This is an important inflation gauge and Thursday’s print indicates that inflationary pressures are not subsiding fast enough. Unemployment claims on Thursday dropped to 239K this week, falling below expectations of 264K. Economic activity data boosted the dollar on Thursday, as a strong economic backdrop, combined with high inflationary pressures increased the odds of another rate hike in July.
Fed Chair Jerome Powell, speaking on Thursday at the Conference on Financial Stability in Spain, reinforced this notion. Powell stressed that US inflation is still at twice the Fed’s 2% target and warned that getting inflation back to target still has a long way to go. Powell stated that after a pause in rate hikes, the Fed is ready to resume a moderate pace of interest rate decisions.
Powell speaking at the ECB Central Bank Forum in Sintra, Portugal, on Wednesday, reiterated that further tightening should be expected. Powell stressed that a pause in June was required to assess the progress of US inflation but stated that consecutive rate hikes may be resumed if needed. Powell added that the majority of FOMC members are in favor of two more rate hikes this year.
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 and many economists believe that the Fed may resume rate hikes as early as July if inflation remains sticky. Powell has warned that additional firming may be appropriate, hinting at the possibility of two more rate hikes.
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.
Core PCE Price Index on Friday is the Federal Reserve’s primary inflation gauge and may cause volatility in the price of the dollar as it can potentially influence the Fed’s rate decision in July.
The Euro extended losses on Thursday, with EUR/USD dropping to the 1.086 level. the EUR/USD pair declines, it may find support at 1.084, while resistance may be encountered near 1.101.
German CPI data on Thursday showed that inflationary pressures continue to rise in Germany. Monthly CPI in Germany rose by 0.3% in June, exceeding expectations of a 0.2% print. German inflation rose to 6.4% year-on-year in June, above May’s 6.2% and the consensus estimate of 6.3%. Spanish CPI on the other hand showed signs of cooling, with a 1.9% annual print in June from 3.2% in May.
The ECB Central Bank Forum in Portugal is one of the critical financial events of the week. Lagarde’s speech at the forum on Wednesday was especially hawkish, stressing that there is still a lot of ground to cover to bring inflation down and pointing at another rate hike in July. Lagarde admitted that recent economic data were weak and that the Eurozone economy remains stagnant, but remained confident that the EU would avoid going into recession.
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 has pointed to further rate hikes up ahead to tackle sticky inflation in the Eurozone.
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.
Eurozone CPI and Core CPI estimates on Friday are expected to provide information on EU inflation and may cause volatility in the price of the Euro, especially considering Thursday’s German CPI data.
The Sterling edged lower on Thursday, with GBP/USD dropping to 1.257. 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 at its June meeting, bringing the bank rate to 5.0%. Sticky inflation in the UK is putting pressure on BOE policymakers to increase interest rates. Bailey warned that if price pressures remain persistent, further tightening would be required. 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.
BOE Governor Andrew Bailey spoke at the ECB Central Bank Forum in Sintra on Wednesday. Bailey defended the central bank’s decision to hike rates by a surprise 50 bps, saying that the UK is showing signs of sticky inflation, emphasizing once again the role of the British labor market in high inflation rates. Bailey’s unwavering hawkish stance boosted the dollar on Wednesday.
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% on an annual basis 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. Final GDP data for the first quarter of the year will be released on Friday and may provide additional information on the UK’s economic outlook.
The Yen retreated further on Thursday and USD/JPY rose to the 144.8 level. If the USD/JPY pair declines, it may find support near 139.8. If the pair climbs, it may find resistance at 145.
The Yen has been retreating, 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. On Wednesday, Masato Kanda, Japan's top currency diplomat warned against further falls in the yen, stating that Japanese authorities are keeping a close eye on FX developments. Japanese Finance Minister Suzuki also warned that they were ready to respond appropriately to one-sided currency trading.
The BOJ maintained its ultra-accommodating monetary policy at its June meeting, holding its short-term interest rate target steady at -0.10% and keeping its yield curve control program unchanged. The BOJ has signaled it is in no rush to change its dovish stance despite rising inflation rates.
BOJ Governor Kazuo Ueda has stated that, even though price pressures are expected to grow over the next few months, there is high uncertainty on next year's wage growth. Ueda also stressed that more time is needed until the bank’s 2% inflation target became sustainable.
Ueda, speaking at the ECB Central Bank Forum in Sintra on Wednesday reiterated that there's still some distance to go in sustainably achieving 2% inflation accompanied by sufficient wage growth in Japan. The BOJ considers that the Japanese economy needs to meet these criteria, to consider stopping their ultra-easy monetary policy.
The BOJ summary of opinions released on Monday showed that policymakers are considering a tweak to the central bank’s Yield Curve Control policy, though. Even though Ueda has repeatedly downplayed such a possibility shortly, some analysts see a potential tweak to the policy as early as this July.
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. BOJ Core CPI rose to 3.1% in June from 3.0% in May. Inflation in Japan remains steadily above the BOJ’s 2% target, putting pressure on businesses and households.
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.
Tokyo Core CPI, which is a key inflation gauge, and other economic activity indicators on Friday may cause some volatility in the price of the Yen.
The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.
Written by:
Myrsini Giannouli
presença na indústria como Provedor de Liquidez
e execução confiável
fundos de clientes
suporte ao cliente
O site que está agora a visualizar é operado pela TopFX Global Ltd, uma entidade regulada pela Financial Services Authority (FSA) das Seicheles com uma Licença de Negociante de Títulos N.º SD037 que não está estabelecida na União Europeia ou regulada por uma Autoridade Nacional Competente da UE.
Se desejar prosseguir, queira confirmar que a sua decisão será por sua iniciativa exclusiva e que nenhuma solicitação foi feita pela TopFX ou por qualquer outra entidade dentro do Grupo.
Não mostrar esta mensagem novamente
O site TopFX usa cookies para otimizar a experiência do usuário.
Esses cookies se enquadram nas seguintes categorias: cookies essenciais, funcionais e de marketing. Os cookies de marketing também podem incluir cookies de terceiros.
Você pode personalizar sua seleção de quais cookies deseja aceitar.
Esses cookies são necessários para que o site funcione corretamente e não pode ser desligado.
Os cookies funcionais permitem que o site se lembre das preferências dos usuários e as opções que você faz no site, como nome de usuário, região e idioma.
Esses cookies são usados para rastrear visitantes em nossos sites e mostrar anúncios mais relevantes. Os cookies de marketing também incluem cookies de terceiros da Partners. Para obter mais informações relacionadas à proteção e coleta de dados, consulte nossa Política de Privacidade e Divulgação de Cookies.
