Important calendar events
The dollar started to recover last week, and the dollar index rose to the 103.5 level mid-week but retreated to 102.9 on Friday. US Treasury yields surged, with the US 10-year bond yielding 3.85% at the end of the week.
The dollar was strongly influenced by US economic data last week, as well as by hawkish Fedspeak. July’s monetary policy meeting is drawing close, and the dollar exhibits high volatility on market uncertainty as to the Fed’s policy direction.
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.
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.
Core PCE Price Index on Friday, however, fell short of expectations, putting pressure on the dollar. This is the Federal Reserve’s primary inflation gauge and Friday’s print may influence the Fed’s rate decision later in July. Core PCE climbed by 0.3% in May, bringing the annual rate to 4.6% from 4.7%. Headline PCE, however, was up just 3.8%, indicating cooling inflation.
Stronger-than-expected U.S. economic data boosted the dollar last week. 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.
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.
The EUR/USD pair was volatile last week, ending the week near the 1.090 level. the EUR/USD pair declines, it may find support at 1.083, while resistance may be encountered near 1.101.
The ECB Central Bank Forum in Portugal was one of the critical financial events of last 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 hinting 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.
On the data front, Eurozone CPI and Core CPI estimates on Friday were more optimistic than expected, boosting the Euro. Euro Area headline inflation fell to 5.5% year-on-year in June from 6.1% in May, against expectations of 5.6%. Core CPI, which excludes food and energy, rose to 5.4% on an annual level from 5.3% in May but still fell below expectations of a 5.5% print. 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.
German CPI data on Thursday, however, 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.
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 was volatile last week, and GBP/USD plummeted to 1.259 mid-week but pared losses on Friday, climbing to 1.269. If the GBP/USD rate goes up, it may encounter resistance near 1.285, while support may be found near 1.259.
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 Sterling last week.
UK inflation surprised to the upside last week, showing that price pressures in the UK remain high, forcing the Bank of England to extend its hiking cycle. 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 last week, and USD/JPY rose to the 145.1 level for the first time since November but retreated to 144.3 on Friday. If the USD/JPY pair declines, it may find support near 141.2. If the pair climbs, it may find resistance at 145.1.
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.
Tokyo Core CPI, which is a key inflation gauge, fell below expectations on Friday, reinforcing the BOJ’s decision to keep interest rates low. Tokyo Core CPI increased by 3.2% in June from 3.1% in May but fell short of expectations of a 3.4% print. 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 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. Final GDP Price Index 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 were volatile last week, dropping to $1,893 per ounce mid-week but paring some of their losses later in the week and climbing back to $1,918 per ounce. If gold prices increase, resistance may be encountered near $1,933 per ounce, while if gold prices decline, support may be found near $1,893 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 started to recover last week, and the dollar index rose to the 103.5 level mid-week but retreated to 102.9 on Friday. US Treasury yields surged, with the US 10-year bond yielding 3.85% at the end of the week.
Stronger-than-expected U.S. economic data boosted the dollar mid-week but signs of cooling price pressures in the US put pressure on the dollar at the end of the week. Consequently, gold prices plummeted mid-week as the dollar surged, but pared some losses on Friday as the dollar weakened. Final US GDP data on Thursday showed that the US economy expanded by 2.0% in the first quarter of the year. Core PCE Price Index on Friday, however, fell short of expectations. This is the Federal Reserve’s primary inflation gauge and Friday’s indicated that price pressures in the US are cooling, providing some support for gold.
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.
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, warned 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. Powell’s unwavering hawkish stance boosted the dollar on Wednesday, putting pressure on gold prices.
Expectations of additional monetary tightening boost the dollar, driving gold prices down. 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.
Oil prices dipped at the beginning of last week and WTI price dropped to $67 per barrel mid-week but rallied towards the end of the week, closing near the $70 per barrel level. If the WTI price declines, it may encounter support near $67 per barrel, while resistance may be found near $72.5 per barrel.
Oil prices gained strength last week as US inventories declined, offsetting worries about further interest rate hikes. The U.S. Energy Information Administration announced a higher-than-expected drop in US crude oil inventories on Wednesday. Crude oil inventories dropped by 9.6 million barrels in the week ending on June 23rd, far exceeding expectations of a 1.4-million-barrel decline. Political instability in Russia also provided support for oil prices last week. Geopolitical tensions held oil prices up, as the crisis in Russia raised oil supply concerns.
Further rate hike expectations put a lid on oil prices’ ascent last week, though. Final US GDP data on Thursday showed that the US economy expanded by 2.0% in the first quarter of the year. A strong economic backdrop, combined with a hawkish Fedspeech, increased the odds of another Fed rate hike in July. Signs of cooling US inflation on Friday, though, provided some support for oil prices.
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, 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 also delivered a hawkish speech at the ECB Central Bank Forum in Sintra. Powell warned that further tightening would be required, hinting at two more rate hikes up ahead. Expectations of additional monetary tightening reduce oil demand expectations, putting pressure on oil prices.
Deterioration in China’s economic outlook is also pushing oil prices down. Uncertainty over China’s economic recovery has put a cap on oil prices. China is the world’s largest importer and the weaker Chinese oil demand outlook has put 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. The OPEC+ meeting this week on the 5th is expected to attract the attention of market participants and may cause volatility in oil prices.
Crypto markets surged earlier in June on reports that large financial services institutions have announced major crypto initiatives. Crypto markets showed signs of recovery but could not maintain a bullish momentum last week. The cryptocurrency rally was halted as stronger-than-expected U.S. economic data increased Fed rate hike expectations mid-week. Signs of cooling US inflation on Friday, however, provided some support for risk assets and most major cryptocurrencies gained strength over the weekend.
Bitcoin traded sideways last week, oscillating around the key $30,000 level, and climbing to the $30,500 level over the weekend. If the BTC price declines, support can be found near $29,600, while resistance may be encountered near $31,400.
Ethereum price edged higher last week, touching $1,940 over the weekend. If Ethereum's price declines, it may encounter support near $1,713, while if it increases, resistance may be encountered near $2,016.
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, speaking on Thursday at the Conference on Financial Stability in Spain, reinforced this notion. Powell stated that after a pause in rate hikes, the Fed is ready to resume a moderate pace of interest rate decisions.
Powell also delivered a hawkish speech at the ECB Central Bank Forum on Wednesday putting pressure on cryptocurrencies. Powell warned that further tightening should be expected and stressed that consecutive rate hikes may be resumed if required. Powell added that the majority of FOMC members are in favor of two more rate hikes this year. Risk sentiment dropped as the Fed showed signs of resuming its hawkish stance.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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