Important calendar events
The dollar plummeted last week after Wednesday’s Fed policy meeting, dropping the dollar index to 101.0. The dollar rallied on Friday, paring some of its losses and the dollar index climbed back to 101.3. US Treasury yields also declined, with the US 10-year bond dropping below 3.35% mid-week but recovered a little on Friday and ended the week near 3.44%.
The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting on Wednesday, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%.
The rate hike was fully anticipated, however, and had already been priced in by markets. Market attention was primarily focused on the FOMC statement and press conference for forward guidance. The FOMC statement released after the 2-day meeting was dovish, putting pressure on the dollar. The Fed omitted a line used in previous statements about the likely need for additional rate increases. In addition, the FOMC statement contained a warning that the recent crisis in the Banking sector is ‘likely to weigh on economic activity’. At the press conference following the meeting, Federal Chair Jerome Powell stated that further actions will be data-driven, taking into account not only the direction of inflation but also economic conditions as well.
Markets interpreted the Fed’s statement as a clear sign of a pause in rate hikes after May’s interest raise. The US Central Bank has signaled that its hawkish policy is coming to an end, as prolonged tightening is putting the economy at risk and the recent turmoil in the banking sector has increased recession concerns. Many analysts predict that there is a high probability of rate cuts starting in November, depending on economic conditions and inflationary pressures.
Non-Farm Employment data were unexpectedly optimistic. The US Added 253K Jobs in April, exceeding expectations of 181K new payrolls. The Unemployment Rate dropped to 3.4% last week, reaching a 50-year low. Average hourly earnings increased by 0.5% in April from 0.3% in March. This is a strong inflation gauge for the Fed, indicating that inflation rates might be picking up again.
US Unemployment Claims on Thursday went up to 242K, exceeding expectations of 239K. Preliminary Nonfarm Productivity contracted by 2.7% in the first quarter of the year versus a 1.7% decline predicted. Prelim Unit Labour Costs also went up by 6.3%. The labor data are connected to consumer inflation, indicating that price pressures in the US remain high.
ISM Services PMI data on Wednesday were in line with expectations and failed to provide much support for the dollar ahead of the Fed meeting later in the day. ISM Services PMI rose to 51.9 in April from 51.2 in March, remaining firmly above the threshold of 50 that denotes industry expansion. ADP Non-Farm Employment data on Wednesday were more optimistic than anticipated. The data showed that the number of employed people in non-farming industries in the US grew by 296K in April from 142K in March, against expectations of a 148K print.
Disappointing jobs data on Tuesday pushed the dollar down. JOLTS job openings tumbled to 9.59 million in March from 9.97 million in February, against expectations of 9.64 million. The drop in job openings is an indication that the labor market is softening after prolonged economic tightening.
Advance GDP data last week for the first quarter of the year were mostly disappointing, pushing the dollar down. GDP data showed that the US economy expanded by 1.1% against expectations of 2% and a 2.6% growth in Q4 of 2022. Advance GDP Price Index on the other hand rose by 4.0% in Q1 of 2023, versus 3.7% expected. This index is a measure of inflation and indicates that price pressures remain high. US Unemployment Claims on Thursday were more optimistic than anticipated at 230K, dropping below expectations of 247K.
Key inflation data released last week showed that US inflation rose slightly in March. The core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in March, in line with expectations. On an annual basis, core PCE increased by 4.6%, beating expectations for a 4.5% growth.
US Consumer Price Index went down to 5.0% year-on-year in March from 6.0% in February. Monthly CPI rose by 0.1% in March, indicating that inflation cooled significantly from February’s 0.4% print. Core CPI, which excludes food and energy, was in line with expectations, rising by 0.4% every month. PPI data last week fell below expectations, strengthening the notion that inflationary pressures are easing. PPI in March dropped by 0.5%, against expectations of remaining the same as in February.
US inflation data are the most eagerly-anticipated US fundamentals this coming week. Consumer Price Index on the 10th is expected to rise to 5.2% year-on-year in April, accelerating from a 5.0 print in March. Monthly CPI is forecast to rise 0.4% in April after rising by only 0.1% in March. Core CPI is seen little change around 5.6% year-on-year. PPI data on the 11th will provide a more complete picture of the direction of US inflation. If inflation does not show signs of cooling fast enough, it may derail the Fed’s plans of pausing rate hikes.
The Euro was volatile last week and lost strength on Thursday as the ECB slowed the pace of rate hikes. EUR/USD dropped to 1.099 after the announcement of the ECB decision but pared some losses later in the week, climbing to 1.102 on Friday. If the currency pair goes up, it may encounter resistance near 1.109. If the EUR/USD pair declines, it may find support at 1.091.
The EUR/USD pair exhibited high volatility last week, as the Fed and ECB monetary policy meetings were held on the 3rd and the 4th respectively. The ECB raised interest rates by 25 bp at its monetary policy meeting on Thursday, bringing its main refinancing rate to 3.75%. The interest rate increase was anticipated by markets and had already been priced in. The ECB had raised interest rates by 50 bp in previous meetings and is slowing down the pace of rate hikes. The Federal Reserve also raised interest rates by 25 basis points on Wednesday. The Fed’s benchmark interest rate, however, is much higher, in a target range of 5.00% to 5.25%. The divergence between the Fed’s and the ECB’s interest rates is putting the Euro at a disadvantage.
The ECB left the door open for further rate hikes as inflationary pressures in the EU remain high. The ECB, however, is expected to reassess its policy direction ahead of its next meeting in June. EU policymakers must take a lot of variables into account, including the effect of economic tightening on the now fragile banking sector.
Inflation data on Tuesday showed that price pressures in the Eurozone remain high. Headline inflation rose to 7.0% year-on-year in April from 6.9% in March, in line with expectations. Core CPI, which excludes food and energy, dropped slightly to 5.6% on an annual basis in April from 5.7% in March. Eurozone inflation is not showing signs of cooling despite the ECB’s aggressive tightening.
Preliminary GDP Flash data for the first quarter of the year rose to 0.1%, registering a small improvement against the 0 print for the final quarter of 2022. The print was lower than consensus estimates of a 0.2% growth, indicating very slow economic expansion in the EU.
The Sterling gained strength against the dollar last week and the GBP/USD pair rose to 1.265. If the GBP/USD rate goes up, it may encounter resistance near 1.266, while support may be near 1.236.
UK Final Services PMI data last week were optimistic, rising to 55.9 in April from 54.9 in March. The PMI indicator remained firmly above the threshold of 50 indicating industry expansion. Mortgage Approvals went up by 52K in April from March’s 44K, indicating expansion in the housing sector.
All eyes are going to be on the Bank of England this week, as the Monetary Policy decision is coming up on the 11th. The BOE raised interest rates by 25 basis points at its last meeting in March, bringing the bank rate to 4.25%.
The BOE is expected to hike rates by another 25 basis points at its policy meeting on Thursday. Market odds are in favor of more BOE rate hikes up ahead and many analysts predict no rate cuts at all within the year.
The BOE has been following an aggressively hawkish monetary policy, aiming to bring inflation down. Inflation in the UK is still rampant, however, after more than a year of raising interest rates. British headline inflation remained above the 10% level in March, dropping to 10.1% year-on-year from 10.5% in February. Even though inflation showed signs of cooling, it exceeded expectations of a 9.8% print. Inflation in the UK has become entrenched, forcing the BOE to continue its policy of economic tightening against a weak economic backdrop.
The UK economy registered stagnation in March according to recent GDP data. Monthly GDP dropped to zero, falling below expectations of 0.1% expansion. In addition, the IMF has downgraded the UK’s growth forecast, predicting that the British economy will contract by 0.6% this year, which is also consistent with BOE forecasts. April’s GDP print on Thursday ahead of the BOE policy meeting will be crucial.
The UK’s grim economic outlook limits policymakers’ ability to increase interest rates sufficiently to rein in inflation. The British economy is struggling, and policymakers will have to assess how much tightening it can withstand to bring inflation down.
The Yen gained strength against the dollar last week and USD/JPY declined, touching the 133.5 level. The USD/JPY pair pared some of its losses on Friday, rising to the 135 level. If the USD/JPY pair declines, it may find support near 133. If the pair climbs, it may find resistance at 138.1.
Last Wednesday through Friday were Bank Holidays in Japan and a few fundamentals were released last week. Global economic concerns promoted a risk-off appetite last week, raising the appeal of the safe-haven Yen.
Monetary Base data released on Tuesday for Japan were pessimistic for the country’s economy, adding pressure on the Yen. Monetary Base reflects the change in the total quantity of domestic currency in circulation and current account deposits held at the BOJ. The monetary base in April dropped by 1.7%, against a 1.0% drop in March and expectation of a 1.3% decline.
The BOJ decided to continue its dovish monetary policy at the bank’s latest meeting in April. This was the first meeting with the newly-appointed BOJ Governor Kazuo Ueda at the helm. Kazuo Ueda has replaced Haruhiko Kuroda, whose term in office ended on April 9th, becoming the BOJ's 32nd governor.
Japanese policymakers maintained ultra-low interest rates at the BOJ policy meeting, keeping the central bank’s refinancing rate at -0.10%. The BOJ issued a statement that was more dovish than anticipated, putting pressure on the Yen.
The BOJ modified its forward guidance slightly at its latest meeting by removing a pledge to keep interest rates at current or lower levels. In addition, the BOJ announced a review of the impact of its easing policies with a planned time frame of around one to one-and-a-half years. This signals a policy change down the road, although it is clear that the BOJ does not have any immediate plans to pivot to a more hawkish policy. On the other hand, the BOJ sent mixed messages to markets, by announcing that its Yield Curve Control Policy will remain unchanged. Many market participants were expecting a more hawkish forward guidance and the Yen plummeted.
BOJ Core CPI rose to 2.9% in March on an annual basis from 2.7% in February. March’s print exceeded expectations of a 2.6% growth, indicating that price pressures in Japan continue to rise.
National Core CPI remained unchanged at 3.1% year-on-year in March. Tokyo Core CPI for April was hotter than expected, at 3.5% on an annual basis, against expectations of a 3.2% print. Inflation in Japan remains steadily above the BOJ’s 2% target, putting pressure on businesses and households. Increased price pressures and wages, raise concerns of a wage-price spiral and may force the BOJ to pivot towards a more hawkish policy.
Final GDP data for Q4 of 2022 have shown that the Japanese economy has reached stagnation. Japan’s poor economic outlook raises recession concerns for the world’s third-biggest economy. The final GDP Price Index printed slightly higher than expected, with a 1.2% annual expansion, versus 1.1% predicted.
Gold prices soared last week, reaching a new all-time high of $2,081 per ounce on Thursday. However, gold prices erased most of the week’s gains on Friday, retreating to $2,015 per ounce. If gold prices increase, resistance may be encountered near $2,081 per ounce, while if gold prices decline, support may be found near $1,970 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. Increased risk aversion sentiment combined with the dollar’s decline, boosted gold prices last week. In addition, the Federal Reserve signaled a pause in rate hikes on Wednesday, boosting gold prices.
The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting on Wednesday, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. The rate hike was fully anticipated, however, and had already been priced in by markets.
The FOMC statement released after the 2-day meeting was dovish, providing support for gold prices. The US Central Bank has signaled that its hawkish policy is coming to an end, as prolonged tightening is putting the economy at risk and the recent turmoil in the banking sector has increased recession concerns. Markets interpreted the Fed’s statement as a clear sign of a pause in rate hikes after May’s interest raise.
The dollar plummeted last week after Wednesday’s Fed policy meeting, dropping the dollar index to 101.0. The dollar rallied on Friday, paring some of its losses and the dollar index climbed back to 101.3. US Treasury yields also declined, with the US 10-year bond dropping below 3.35% mid-week but recovered a little on Friday and ended the week near 3.44%.
In addition, in a letter to the US Congress, US Treasury Secretary Janet Yellen warned that the office would not meet all US government obligations by June 1. Mounting fears of a US debt default drove gold prices up on Tuesday.
The recent crisis in the banking sector caused risk sentiment to plummet, raising the appeal of safe-haven assets. Renewed concerns about a banking sector meltdown provide support for gold prices. First Republic Bank announced last week that its deposits fell 40% in the first quarter of this year, and the bank’s stock went into freefall. First Republic collapsed on Monday but was bought by JPMorgan after US regulators invited other banking institutions to step in. Stock prices of other banks plunged during the week, generating financial instability. Fears of a banking sector meltdown are returning, enhancing gold’s haven status.
Oil prices plunged last week on a reduced demand outlook, with WTI price dropping below $69 per barrel. Oil selloff was halted on Thursday though and oil prices rallied towards the end of the week, with WTI price closing above $71 per barrel on Friday. If the WTI price declines, it may encounter support near $67.4 per barrel, while resistance may be found near $77 per barrel.
The ECB’s dovish decision on Thursday provided support for oil prices. The ECB raised interest rates by 25 bp at its monetary policy meeting on Thursday, bringing its main refinancing rate to 3.75%. However, the ECB had raised interest rates by 50 bp in previous meetings and is slowing down the rate hikes.
Oil prices have been under pressure last week, as mounting economic risks reduce the oil demand outlook. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. US Treasury Secretary Janet Yellen in a letter to the US Congress warned that the office would not meet all US government obligations by June 1. Mounting fears of a US debt default drove oil prices down on Tuesday.
The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting on Wednesday, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. The FOMC statement released after the 2-day meeting was dovish, providing support for oil prices. The US Central Bank has signaled that its hawkish policy is coming to an end, as prolonged tightening is putting the economy at risk and the recent turmoil in the banking sector has increased recession concerns.
As recession concerns mount, the potential of a banking sector meltdown has reduced the oil demand outlook. First Republic Bank announced last week that its deposits fell 40% in the first quarter of this year and its stocks went into freefall. This raised an alarm in the banking sector, pushing oil prices down. First Republic collapsed on Monday but was bought by JPMorgan after US regulators invited other banking institutions to step in. Stock prices of other banks plunged during the week, generating financial instability. Fears of a banking sector meltdown are returning, diminishing the oil demand outlook.
Weak Chinese manufacturing data pushed oil prices this week. Chinese manufacturing PMI dropped to 49.2 for April from 51.9 in March, missing expectations of 51.4. Non-manufacturing PMI dropped to 56.4 in April from 58.2 in March versus 57.0 anticipated. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand.
Oil prices are supported by limited supply however, as OPEC+ producers recently decided to reduce output by 1.1 million barrels per day, to offset the drop in oil prices from the global banking crisis.
Cryptocurrency prices were volatile last week, affected by economic uncertainty. Risk sentiment fluctuated, as banking sector woes raised recession concerns. Signs that major central banks are starting to wind down their hiking cycles, however, provided support for risk assets.
Crypto markets gain strength as central banks prepare to pause rate hikes. The ECB’s dovish decision on Thursday provided support for cryptocurrency prices. The ECB raised interest rates by 25 bp at its monetary policy meeting on Thursday, bringing its main refinancing rate to 3.75%. However, the ECB had raised interest rates by 50 bp in previous meetings and is slowing down the rate hikes.
The Federal Reserve raised interest rates by 25 basis points at its monetary policy meeting on Wednesday, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. The FOMC statement released after the 2-day meeting was dovish, however, boosting risk assets. The US Central Bank has signaled that its hawkish policy is coming to an end, as prolonged tightening is putting the economy at risk and the recent turmoil in the banking sector has increased recession concerns.
The recent banking crisis has undermined trust in the banking system, raising the appeal of investing in less conventional assets, such as cryptocurrencies. Many investors have turned towards cryptocurrencies fearing a globalised meltdown in the banking system. However, renewal concerns about a banking sector meltdown have caused turbulence in crypto markets.
In addition, in a letter to the US Congress, US Treasury Secretary Janet Yellen warned that the office would not meet all US government obligations by June 1. Fears of a US debt default are mounting, but crypto markets have benefitted from the resulting market turmoil.
Bitcoin price traded sideways last week, oscillating around the, touching the $28,900 level. If the BTC price declines, support can be found near $27,000, while resistance may be encountered near $30,000.
Ethereum price spiked briefly on Friday, climbing to the $2,000 level but pared gains during the weekend. If Ethereum's price declines, it may encounter support near $1,800, while if it increases, resistance may be encountered at $2,017.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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