The US dollar rose on Thursday, supported by a slight rise in US Treasury yields. This came even though the first-quarter current account deficit came in wider than expected, and jobless claims topped 260,000 for the third straight week (weaker hiring). Fed Chairman Powell testified on Capitol Hill (this time in the House of Representatives) and reiterated a view expressed yesterday in the Senate.
Regarding the pace of the economy, Powell highlighted the cautious and slow approach in the recent amendments, emphasizing proximity to “destination over pricing.” His remarks highlighted the Fed’s cautious policy adjustment approach to avoid excesses. Regarding inflation and the labor market, Powell expressed his expectation that inflation will decline throughout the year and that the labor market will continue to slow gradually. However, he acknowledged the lack of progress in service inflation and acknowledged a long journey ahead in terms of achieving monetary policy goals.
On the labor market, Powell has set a path for inflation to continue to decline with only a small increase in unemployment, expressing his desire for labor market relaxation to occur through other means than through unemployment. He also acknowledged that there was no consensus on how long monetary policy would take to affect the economy, but estimated it to be about a year.
Powell reiterated the possibility of more rate hikes this year, with the possibility of two more rate hikes on the horizon. He explained the decision to keep interest rates unchanged, which was designed to provide more time for decision-making, signaling the Fed’s continued cautious approach. The remarks were in line with those made during yesterday’s Senate testimony.
The US dollar ends the day as the strongest of the major currencies while the yen is the weakest. USDJPY was the biggest driver with gains close to 1% on the day, and the highest level since November 10, 20222.
The dollar is the strongest and the Japanese yen is the weakest
USDJPY traded to the highest level of the year at 143.22. The move took the price above 61.8% of the move down from the 2022 high of 143.50. That’s the risk now (down to 143,246). It opens the door for more upside as long as the price continues to trade above the above mentioned levels. The next major target area comes in between 144.98 to 145.90 (see post here).
The British pound showed volatility in the aftermath of the Bank of England’s decision to raise interest rates by 50 basis points more than expected. Although this decision led to an initial rally in GBPUSD, it was quickly reversed by concerns about the impact of policy tightening, rising mortgage rates and fears of a possible recession. GBPUSD is trading between the 100 hourly moving average above at 1.2773 and the 200 hourly moving average below at 1.27136. The current price is between the two levels 1.2744.
The Swiss National Bank raised interest rates by 25 basis points as expected. USDCHF fell following the news, but bounced back, extending above the 100 hourly moving average at 0.8956. However, late selling in the US session is pushing the price below this moving average level. The central bank has hinted at the need to raise interest rates in the future.
As we move forward, the market’s attention on Friday will be on the PMIs in Europe and the US.
Screenshot from other markets today showing:
- Crude oil fell over $3, or -4.25 percent, to $69.45 as concerns about slowing growth from central bank hikes weighed on the market.
- Gold prices fell sharply on the back of a stronger dollar and rising prices. The price fell to -19.11 USD or -0.99% at 1913.18 USD. The price is trading at its lowest level since March
- Silver fell $0.41, or -1.81%, to $22.23. It is trading at its lowest level since March as well
- Bitcoin is once again trading above the $30,000 level at $30,162
In today’s US stock market, Nasdaq and Standard & Poor’s both snapped 3-day losing streaks. Major indices remain on track for a bearish week. The S&P is on track to snap a 5-week streak with a higher close, while the NASDAQ is on track to snap its 8-week winning streak. For the day
- The Dow Jones Industrial Average fell -4.81 points, or -0.01%, to 33,946.72.
- The Standard & Poor’s Index was up 16.22 points, or 0.37%, at 4,381.90.
- The Nasdaq was up 128.40 points, or 0.95%, at 13,630.60.
For the trading week, go to the last trading day of the week:
- The Dow Industrial Average fell -1.03%
- The S&P fell -0.63%
- The Nasdaq fell -0.43%.
In the US debt market, yields are rising despite weaker preliminary jobs data as markets react to expectations that the Fed is still far from cutting rates and is likely to raise rates further:
- 2 years yield 4.795% +8.8 basis points
- 5-year yield of 4.045% +9.1 basis points
- 10 years 3.796% +7.4 basis points
- 30-year yield of 3.873% +6.4 basis points