US dollar continues to gather strength
Tuesday 2 May, 2023
Daily Currency UpdateThe US dollar has started the first week of May on firm and stable footing. The USD continues its bullish momentum from the last week of April and gathered more strength against other major peers. The US Dollar Index (DXY) rose more than 4.5% on a daily basis, last seen trading at 102.30 levels. This is mainly driven by a more than 4% surge reported in the benchmark 10-year US Treasury bond yields and the upcoming Federal Reserve's policy meeting on Wednesday where the markets are expecting a rise of 25 basis points (bps) in the policy rate by the Fed, taking it to 5%- 5.25%. Fed Chair, Jerome Powell, said, “the Fed considered a pause but added that it was too soon to say how Fed policy has been impacted by the banking crisis. We think that still holds true now and so we expect the Fed to leave the door wide open to further hikes.”
The First Republic Bank, the second-largest bank, collapsed early Monday. JP Morgan absorbed First Republic’s approximately $173 billion in loans, $30 billion in securities, and $92 billion in deposits. JP Morgan also received $50 billion in financing. This collapse demonstrates that the Banking Crisis is far from being over. High interest rates are being positioned as the culprit of the current banking crisis and a pause in the interest rate hikes by the Fed is seen to support banks which are stressed with low-yield assets in a high-yield environment. Factory orders data released today showed that that new orders for manufactured goods increased $4.9 billion to a total of $539 billion in March.
US Bureau of Labor Statistics released data showing the number of job openings on the last business day of March stood at 9.59 million, compared to 9.97 million in January. This reading came in below the market expectation of 9.77 million.
Key MoversThe Reserve Bank of Australia (RBA), in a very surprising move this morning, hiked rates by 25 bps, this was unexpected as the markets were not anticipating any change.
The EUR/USD pair was play defense after losing its upward momentum. The European Central Bank (ECB) is expected to hike rates by 25 bps in its meeting on Thursday. Retail sales in Germany contracted 8.6% year-over-year in March, while Manufacturing Purchasing Manager’s Index (PMI) data in Germany and the Eurozone were recorded at 44.5 and 45.8, respectively. EUR/USD tumbled to the 1.0950 levels following the ECB's Bank Lending Survey which revealed the negative effect of soaring interest rates on financing conditions. In the meantime, the annual core Harmonized Index of Consumer Prices in the Eurozone edged lower to 5.6% in April from 5.7%.
GBP/USD again was on the bearish side and lost its traction dropping below the 1.25 mark. It was last seen trading near 1.2455. March data continued to exhibit UK inflation numbers above the double-digit level for 7 consecutive months. This suggests the Bank of England (BoE) is not done pausing rate hikes. The UK Manufacturing PMI was revised at 47.8 for April as compared to the 46.6 estimated in the flash reading.
- EUR/USD: 1.0951 - 1.1003 ▼
- GBP/USD: 1.2446 - 1.2522 ▼
- AUD/USD: 0.6623 - 0.6714 ▼
- USD/CAD: 1.3529 - 1.3628 ▲