Resurfacing banking sector woes, US recession fears, and debt ceiling concerns kept risk-off flows in for the better part of the week, weighing on higher-yielding currencies.
Despite their safe-haven appeal, the dollar and the yen are still struggling to stay afloat, as US data was below estimates while a dovish decision from the Bank of Japan looms.
The British Pound held the top spot this week, likely due to the lack of negative headlines out of the UK, allowing traders to continue riding the bullish sentiment sparked by last week’s strong UK inflation update.
US dollar pairs
overlap US dollar pairs1 hour forex chart
The US dollar saw a lot of choppy price action as traders had to weigh up economic updates that showed high inflation conditions and signs of slowing economic growth.
But based on the net bearish slope of the US dollar as shown in the above chart, it seems that traders have focused more on listing prospects of a deepening recession and speculations that the Fed is likely to hit the peak of the hiking cycle very soon.
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March US Durable Goods Orders: +3.2% MoM $276.4B vs. a downward revision of -1.2% MoM; Core Durable Goods Orders came in at +0.3%m/m (+0.1%m/m exp) vs -0.3%m/m.
In the week ending April 21, US mortgage applications rose 4.6% year over year; Even though the 30-year fixed mortgage rose 12 basis points to 6.55% (a one-month high)
US quarterly core PCE price index came in up at 4.9% qoq (+4.1% qoq) vs 4.4% qoq.
US Initial Weekly Unemployment Claims for the week ending April 22: 230K vs. 246K in the prior week
Chicago PMI for April: 48.6 (46.0 expected) vs. 43.5 in March
The US Employment Cost Index rose 1.2% qoq (seasonally adjusted) in the first quarter of 2023, stronger than economists’ expectations of 1% qoq.
US Consumer Confidence for April: 63.5 vs. 62.0 – University of Michigan
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Dallas Fed Manufacturing Activity for April: -23.4 (-11.0 expected) vs. -15.7 in March; The Employment Index fell 2.4 points to 8.0. The wage and benefits index rose to 37.6, above the average rate of 21.0
US Treasury Secretary Yellen said failure to raise the debt ceiling would lead to default, leading to “economic disaster.”
US Consumer Confidence fell to 101.3 in April (106.0 expected) vs. 104.0 previously.
S&P/Case-Shiller USH Home Price Index: +0.4% YoY (+1.3% YoY expected) vs. 2.6% YoY
US Advanced GDP reading for Q1 2023: +1.1% qoq vs +2.6% qoq prior; Core PCE prices came in higher at 4.9% qoq (+4.1% qoq) vs. 4.4% qoq.
March US pending home sales: -5.2% m/m (+0.3% m/m expected) vs. 0.0% prior; Sales decline due to supply shortage
euro pairs
overlap euro Pairs: 1 hour forex chart
The Euro was the broad net winner this week, likely supported by European Central Bank officials who maintained their calls for a rate hike at their next monetary policy meeting.
Economic data was also net supportive of interest rate hike speculation, most notably from persistently high inflation updates, improved sentiment survey data, and indications that the Eurozone will avoid a technical recession.
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German Ifo Business Climate Index for April: 93.6 vs. 93.2 previously
ECB Chief Economist Lane said on Monday that the current data calls for another rate hike at the next meeting of the European Central Bank in May.
German GfK Consumer Climate improved from -29.3 to -25.7 vs. -28.0 expected, as income expectations rebounded significantly in April
German preliminary inflation reading for April: +7.2% yoy vs +7.4% yoy in March
European Central Bank Vice President Luis de Guindos believes that the eurozone may avoid recession
Germany raised its growth forecast for 2023 from 0.2% to 0.4% on the basis of stronger-than-expected manufacturing at the start of the year.
Eurozone Economic Sentiment Index (ESI) for April: 99.3 (99.8 expected) vs. 99.2; The EU ESI is unchanged at 97.3
Eurozone GDP Q1 2023: +0.1% qoq as expected vs +0.0% prior
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French Consumer Confidence for April: 83 (81 expected) vs. 82 in March
German Quick GDP Q1 2023: 0.0% qoq (0.1% qoq forecast) vs -0.5% qoq prior (revised down from -0.4% qoq)
Sterling pairs
overlap Sterling pairs1 hour forex chart
The UK had some low-level economic updates this week, which didn’t seem to have much of an impact on the GBP. It was likely able to escape widespread early sentiment of risk riding bullish price momentum sparked by last week’s hot inflation updates from the UK.
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UK public sector net borrowing reached 21.5 billion in March – the second largest on record in March – as the government pursues energy subsidy schemes.
The CBI survey of the UK retail industry improved from +1 in March to +5 in April although retailers do not expect a lasting improvement.
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Real estate website Rightmove: Average asking prices for properties rose 0.2% month over month in April, less than the 1.2% gain seen at this time of year.
Swiss Franc pairs
overlap Swiss Franc pairs1 hour forex chart
The Swiss Franc closed mixed against the majors on Friday, after spending the early part of the week in the green, likely due to risk-off sentiment across broad markets.
Its gains are likely to be limited by banking sector concerns, which marked a peak on Wednesday that correlated with fresh headlines for the banking sector from the US (banking sector concerns returned as First Republic considers selling $100 billion in assets amid a $72 billion deposit run in the quarter). the first)
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Switzerland’s trade surplus widened from CHF 3.31 billion to CHF 4.53 billion in March as exports grew 19.9% month-on-month while imports rose 15.9% month-on-month.
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Swiss Retail Sales for March: -1.9% yoy vs. -0.5% yoy; The monthly reading came in at -0.1% m/m
Swiss National Bank President Thomas Jordaan on Friday warned against tighter regulation of the banking sector
KOF Swiss Economic Barometer for April: 96.38 vs. 99.23
AUD pairs
overlap AUD pairs1 hour forex chart
The Australian dollar saw selling pressure right off the bat, likely due to traders pricing in expectations of weaker-than-expected consumer price updates out of Australia later in the week.
The actual CPI number was lower than expected, which led to more selling in the Australian dollar during the US session on Wednesday.
The Australian dollar has since regained some of its losses, likely on short-term profit-taking, but has remained lower all week. Traders are unlikely to abandon short positions ahead of what could be another bearish event with the upcoming RBA statement due early next week.
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Producer price increases in Australia accelerated from 0.4% to 1.0% qoq in the fourth quarter. On a yearly basis, prices increased by 5.2% (vs. 5.0% expected).
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Australia’s consumer price index for the first quarter fell from 1.9% qoq to 1.4%, dragging annual inflation down from 6.8% to 6.3% vs. 6.5% expected
Australia import price index Q1 2023: -4.2% qoq (+0.7% qoq) vs. +1.8% qoq
March Private Credit in Australia: +6.8% yoy (+7.4% yoy expected) vs +7.6% yoy prior
CAD pairs
overlap bastard Pairs: 1 hour forex chart
The Canadian dollar has been a net loser this week, quickly coming under downward pressure due to lower oil prices, early risk aversion sentiment, and possibly some lingering selling pressure triggered by last week’s weaker-than-expected Canadian inflation update.
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The Energy Information Administration reported that on or in the week ending April 21, 2023, commercial crude oil inventories (excluding the Strategic Petroleum Reserve) decreased by 5.1 million barrels, to 460.9 million barrels.
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BoC Deliberation Summary: A rate hike was considered in April due to Canada’s stronger-than-expected growth; But it was eventually held due to easing demand and inflation measures; It sees inflation of 3% this summer and 2% by late 2024.
Canadian GDP for February: +0.1% m/m (+0.3% m/m expected) vs. +0.6% m/m prior
NZD Pairs
overlap New Zealand dollar Pairs: 1 hour forex chart
The New Zealand dollar was a solid winner despite the net negative data updates from New Zealand this week. This suggests that it likely benefited more from weak countercurrency narratives rather than New Zealand catalysts, and a shift towards risk at the end of the week.
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New Zealand Prime Minister Chris Hepkins is committed to spending cuts and no new taxes this year
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New Zealand credit card spending slowed from 25.5% yoy to 20.3% in March
New Zealand Trade Balance March 2023: – NZD 1.27B (NZD 0.7B exp) vs NZD 0.8B previously
ANZ: New Zealand business confidence is largely unchanged with 43.8% (down from 43.4%) of respondents expecting the economy to deteriorate from April.
Japanese yen pairs
inverted overlay Japanese yen pairs1 hour forex chart
The Japanese yen has had an up-and-down week as traders turned bullish on the yen on Tuesday after a hot read from the Bank of Japan’s Core CPI update. The broad markets were also trending in risk averse behavior on Tuesday, likely to support the Yen during the middle of the week.
Risk sentiment shifted back to risk-on Thursday, likely to move with a heavy dose of positive corporate earnings from the US
By Friday, the yen bears were back in control, especially after the Bank of Japan’s monetary policy statement. In that event, they put off any policy changes for now and stated their intentions to hold a review of monetary policy that could take more than a year, dashing hopes of normalizing monetary policy anytime soon.
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The Bank of Japan’s core CPI rose from 2.7% to 2.9% y/y in March
Japan’s business services inflation rose 1.8% in fiscal 2022 (from 1.2% in 2021), the fastest increase since fiscal 2014
On Tuesday, Bank of Japan Governor Ueda stressed that it was “appropriate to maintain monetary easing” for now, but also said the BoJ was willing to raise interest rates “if wage growth and inflation accelerate faster than expected.”
The Tokyo Consumer Price Index – considered a leading indicator of Japanese inflation – accelerated from 3.2% to 3.5% year-on-year in April
Japanese retail sales rose 7.2% yoy in March vs. 5.8% expected and 7.3% in February.
The Bank of Japan canceled forward guidance and announced its intention to revise monetary policy
The Bank of Japan raised its core CPI forecast for 2023 to 1.8% yoy from 1.6% yoy; Core CPI forecast for 2024 is now 2.0% yoy versus 1.8% yoy prior
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Japan’s unemployment rate jumped from 2.6% to 2.8% in March (vs. 2.5% expected)
An early reading of factory production in Japan showed a 0.8% m/m increase in March, slower than the upwardly revised 4.6% increase in February but faster than the 0.5% growth estimate.
The Bank of Japan halted any changes to its monetary policy (interest rate remains at -0.10%; yield curve control band on 10-year notes remains at 0.50% on both sides of the 0.0% target) on Friday; The review of monetary policy may take a year or more.
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