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EUR/USD finished the week flat after the European Central Bank (ECB) meeting, where the ECB raised rates as expected. The pair approached 1.1100 but then pulled back. Although the correction was limited, it continues to trade sideways in the short term around 1.1000.
USD/JPY had its worst week since March, despite a rebound in US yields and improvement in market sentiment. On Friday, the pair trimmed losses and rose toward 135.00 after the release of US jobs data. Volatility is expected to remain high in Yen crosses due to large fluctuations in Fed rate expectations and as Wall Street wavers.
GBP/USD posted another weekly gain, closing at its highest level since April 2022. Despite some strength in the US Dollar, the pair broke above 1.2600 on Friday. The UK will have a holiday on Monday to celebrate the coronation of King Charles III. On Thursday, the Bank of England (BoE) is widely expected to raise interest rates by 25 basis points. The focus will be on whether the BoE signals a pause or keeps the door open to more hikes. On Friday, the UK will report its monthly GDP.
USD/CAD was trending downwards but collapsed on Friday due to the strong Canadian jobs report, causing the pair to fall below 1.3400 to the lowest in two weeks with the April bottom in sight.
AUD/USD rose for the fifth consecutive day on Friday, reaching 0.6750, the highest level in three weeks; the crucial resistance is still 0.6800. The Australian dollar was the best-performing currency among majors after the unexpected rate hike by the Reserve Bank of Australia (RBA). NZD/USD also rose sharply, ending the week at around 0.6300, the strongest level in months.
Key Developments
Banking-related headlines dominated news coverage on the same day that the Fed hiked interest rates and hinted at a potential halt. The Senior Loan Officer Opinion Survey on Bank Lending Practises, which will be used for the upcoming FOMC meeting, will be made public by the central bank the following week.
The paper discusses modifications to the criteria and conditions of bank lending as well as the situation of corporate and consumer loan demand—all critical factors in the current context with the Fed tightening monetary policy and banking sector worries.
The US 10-year yield briefly hit a three-week low before rebounding to 3.45%, while the US 2-year yield ended lower below 4.0%. Bond yields remain within their recent range. The overall trend remains bearish, but ongoing uncertainty surrounding the US debt ceiling could contribute to increasing market volatility. Meanwhile, the US Dollar Index closed the week at a one-year low but is still holding above the key support level of 101.00.
Economic Data
Gold had a volatile week with mixed signs after a sharp reversal from the record high of around $2,075 towards $2,000 following the Nonfarm Payroll report. Silver rose for most of the week but tumbled 1.70% on Friday, retreating below $26.00. Data on nonfarm payrolls for April were hotter than anticipated. Market participants anticipated a rise in nonfarm payrolls of 179,000 in April, but the actual figure was 253,000, a departure that points to a strong labour market. The information heightened concerns about rising inflation, which caused traders to change their attitude on risky assets.
Bitcoin rose more than 2% on Friday and turned positive for the week, retaking $29,500. Crude oil prices ended the week with losses but far from the lows. WTI rose more than 4% on Friday, not sufficient to erase weekly losses but enough to improve the outlook.
What is next?
The US Consumer Price Index (CPI) next Wednesday and the Producer Price Index (PPI) next Thursday will be the two most important data next week. These figures will help shape interest rate market expectations and will be important for the coming course.
Also Read:
Fed’s Bullard: Rate hike this week was “a good next step”
How does the US dollar react to Friday’s NFP data?
Sterling recovers after post-NFP
