While the US dollar was able to establish some direction for the better part of the day, the price action was a complete mess relative to the rest of the asset classes.
Treasury yields were off to a rocky start before rising steadily while Bitcoin rose and then reversed. The price of crude oil also fell at midday but eventually rebounded, and US stock indices reached new highs.
What happened?
Titles:
- Australia Employment Change for April: 38.5K (22.4K expected, -5.9K previous)
- Australian unemployment rate for April: 4.1% (3.9% expected, previous reading revised from 3.8% to 3.9%)
- US Weekly Initial Jobless Claims at 222K (219K Expected, 232K Previous)
- US Building Permits for April: 1.44 million (1.48 million expected, previous reading was upgraded from 1.46 million to 1.49 million)
- US Philadelphia Fed Manufacturing Index for May: 4.5 (7.7 expected, 15.5 previously)
- US import prices for April: 0.9% m/m (0.2% expected, previous reading upgraded from 0.4% to 0.6%)
- US industrial production for April: 0.0% (0.1% expected, previous reading reduced to 0.1%)
- Three Fed officials (Meister, Williams, and Parkin) signaled that it may take longer for inflation to reach their target than previously expected.
- New Zealand PPI input prices Q1: 0.7% q/q (0.6% expected, 0.9% prior), PPI output prices Q1: 0.9% q/q (0.5% expected, 0.7% prior)
Broad market price movement:
Dollar Index, Gold, S&P 500, Oil, 10-Year US Yields, Bitcoin Overlay Chart by TradingView
The markets were off to a chaotic start from the start, as Treasury yields continued their decline from the previous trading session before bottoming out and settling with the dollar later in the day.
Crude oil tried to stay afloat during Asian market hours but took a major hit when the International Energy Agency revised its oil demand forecast for the second month in a row. Meanwhile, gold was already struggling to maintain its position before succumbing to the strength of the dollar.
Although the average US data was mostly below estimates, price action among risky assets remains mixed. The DJIA tested the key 40,000 barrier for the first time, while the S&P 500 also retreated from record highs, as the frenzy over meme stocks like GME and AMC appeared to have died down.
Forex market behavior: US dollar against major currencies
Overlay of the US dollar against major currencies Chart by TradingView
The fallout from the US CPI release in the Asian session paved the way for a generally negative start for the dollar, especially against the yen which enjoyed support from a relatively upbeat first-quarter GDP and price index.
Additional volatility was also seen in the AUD/USD pair, which was a reaction to the Australian employment numbers, as well as the NZD/USD pair. From there, the greenback saw a steady rise throughout the day, continuing its gains despite the mostly downbeat average data.
Weekly initial jobless claims, the Philadelphia Fed index, building permits and home construction numbers came in below estimates, but some say it may have been the slight rise in import prices in April and a positive revision to March data that led to the strength of the US dollar.
Additionally, hawkish comments from three Fed officials who all indicated interest rates may need to stay “higher for longer” to ensure inflation reaches target may have also buoyed the dollar.
Potential catalysts coming on the economic calendar:
- Speech by Bank of England Monetary Policy Committee Member Mann at 8:00 AM GMT
- Eurozone headline and core CPI at 9:00 AM GMT
- The main US CB index at 2:00 pm GMT
- FOMC Member Waller's speech at 2:15 PM GMT
- FOMC Member Daly's speech at 4:15 PM GMT
The schedule looks light in terms of major economic releases, so focus may remain on US data and the Fed's speech. Note that a number of FOMC members are scheduled to speak later today, which could mean more US dollar volatility before the week is out.
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