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Risk-off trading conditions, triggered by soaring US yields amid hawkish Fed language, led US equities to retreat on Thursday and the safe-haven US dollar has the chance to outperform, against its more risk-sensitive G10 peers mainly the other non-US dollars.
The Dollar Index reversed an earlier dip below the 100.00 level to rally back into the 100.60s, where it trades with on-the-day gains of about 0.3%.
Economic Data
There were 184,000 US Initial Jobless Claims in the week ending on 16 April, the latest data released by the US Department of Labour showed on Thursday, a tad above the expected decline to 180,000 from 186,000 a week earlier. That meant the four-week average number of initial claims rose to 177,250 in the week ending on 16 April from 172,750 a week earlier.
Other Developments
Fed Chair Jerome Powell, as expected, signaled that 50 bps rate hikes at upcoming meetings were likely and the usually more dovish leaning FOMC member Mary Daly even mentioned the possibility of a 75-bps move. AUD/USD and NZD/USD traded with respective losses of 1.0% and 1.1%, with the latter performer a tad worse following Thursday’s not as hot as feared New Zealand Q1 Consumer Price Inflation figures. USD/CAD, meanwhile, rallied from under 1.2500 towards the 1.2600 mark, as stronger oil prices failed to offer the Canadian dollar respite.
In terms of the rest of the major G10 currencies, the euro was the second-best performer on the day, with ECB President Christine Lagarde not saying anything new in her remarks at an IMF panel, but the normally more dovish leaning ECB Vice President Luis de Guindos earlier in the day hinting at the possibility of the first rate hike in July. His remarks seemed to endorse those recently made by some of the ECB’s more hawkish members in recent days pushing for a July hike and saw ECB tightening bets upped as a result.
This supported EUR/USD at the time, with the pair rallying as high as its 21-Day Moving Average in the 1.0930s in early European trade, only for the pair to then reverse 100 pips lower to the low 1.0800s during US trade as the buck regained ground, where it now trades about 0.2% lower on the day. GBP/USD saw similar price action, attempting to break above its 21DMA in the 1.3075 area only to then reverse back to the 1.3025 region where it is now trading lower by about 0.3% on the day.
Meanwhile, higher yields in the US (and elsewhere) saw the yen struggle, though albeit perform a little better than its risk-sensitive peers amid safe-haven demand as stocks fell. USD/JPY gained about 0.4% to rally into the 128.30s, with the bulls eyeing a potential retest of earlier multi-decade highs above 129.00 if 1) US yields keep pushing higher and 2) the BoJ keeps reiterating its dovish stance and defending its yield curve control target range.
In the coming session, flash PMIs will be released across the world, though probably won’t impact FX markets much amid all the focus on central banks, policy divergence and yields. UK and Canadian Retail Sales figures for March should garner some interest, as well as more remarks from ECB President Lagarde and BoE head Andrew Bailey.
Also Read
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US Dollar Benefits From Hawkish Fed Language, Euro In Demand
US Shares Drop As Markets Digest Hawkish Fed Comments
Piper Raises natural gas price forecast
Treasury Yields Resume Climb As US Shares Further Drop
BoE’s Bailey: Scale of real income shock will cause slowdown in UK growth
Powell Reiterates Fed’s plan to get interest rates “expeditiously” to neutral
