Hike rates

DXY, Yields Soar, Fed Hikes Rates, Powell Sees More Rises Ahead

GBP plunges, UK growth outlook deteriorates; EUR, AUD/EMFX fall

Summary: The dollar index (USD/DXY), a favorite gauge of the greenback’s value against a basket of six major currencies, climbed 0.96% to 103.60 (102.50 yesterday), matching its Tuesday’s close (highest since November 2002). This came a day after the FOMC raised interest rates by 50 basis points and signaled that it would continue to rise at that rate in future meetings. It was the largest increase in interest rates since 2000. The US central bank also decided to reduce its holdings of Treasury bills by $47.5 billion per month. The yield on the benchmark 10-year US Treasuries jumped 11 basis points to end at 3.04% from 2.93% yesterday. Elsewhere, the Bank of England raised its main bank rate by 25 basis points to 1%, its fourth consecutive increase. The pound, however, plunged 2.04% to 1.2360 (1.2630) after BOE policymakers said global inflationary pressures had caused UK growth prospects to deteriorate. The Euro (EUR/USD) reversed its initial gains, slipping 0.77% to 1.0545 from 1.0624. Germany, the largest economy in the European Union, saw industrial orders plunge more than expected in March to -4.7% against estimates of -1.0%.

The Australian dollar fell 1.96% to 0.7110 (0.7252), giving up all of its gains after the RBA rate hike, and more. It’s Tasman’s cousin, the Kiwi (NZD/USD) lost 1.91% to 0.6430 from 0.6542. Against the yield-sensitive Japanese Yen, the Dollar rose to 130.20 (129.14). Rising US yields saw the greenback close with robust gains against Asian and emerging market currencies. USD/SGD (US Dollar-Singapore Dollar) climbed to 1.3840 (1.3745) while USD/CNH (US Dollar-Chinese Offshore Yuan) climbed to 6.6825 from 6.6170. Other global bond yields ended mixed. The yield on the 10-year German Bund rose to 1.04% (0.97%). The UK 10-year gilt rate remained unchanged at 1.96%. The Japanese 10-year JGB yield closed at 0.22%.

Data released yesterday saw Australian construction approvals (m/m) falling to -18.5%, against median expectations of -11.7%. Australia’s trade surplus came in at +AUD9.31bn versus forecast of +AUD8.5bn. Switzerland’s CPI rose from 0.6% to 0.4%, but beat expectations at 0.3%. French industrial production fell to -0.5%, below estimates of -0.2%. The UK’s final services PMI rose to 58.9 from 58.3 previously, which economists expected. The Bank of England voted unanimously to raise its main bank rate to 1% from 0.75%. US weekly jobless claims rose from 180,000 to 200,000. Preliminary US non-farm productivity (q/q) fell to -7.5% from 6.3% previously, and expectations medians of -5.1%. Wall Street stocks plunged. The DOW lost 2.47% to 33,163 (34,040) while the S&P 500 fell 2.91% to 4,167 from 4,298 yesterday.

  • EUR/USD – The Euro reversed yesterday’s gains, slipping 0.77% to close at 1.0545 from 1.0624. The ECB will hold its next monetary policy meeting in June (10). The surprise drop in German factory orders in March, which was larger than economists’ estimates (-1.0%), has traders wondering how quickly the ECB can withdraw stimulus without throttling the economy. ‘activity. The overnight low was at 1.0492.
  • GBP/USD – The pound has plunged to 1.2362 from its open at 1.2630 after the Bank of England raised its main discount rate by 25 basis points to 1%. Policymakers, however, said global inflationary pressures had caused their growth outlook for the UK economy to deteriorate. In a choppy trade, the low traded was at 1.2325. While the overnight high recorded was at 1.2633. Wow.
  • AUD/USD – swipe-swipe away. After the Aussie Battler took off following the RBA’s rate hike, the AUD/USD pair quickly reversed its gains as risk appetite deteriorated. AUD/USD finished in New York at 0.7110 vs. 0.7252 yesterday. Overnight, the Aussie Battler dipped as low as 0.7077 before rebounding late in New York.
  • USD/JPY- The greenback ended up 0.7% against the Japanese yen at 130.20 from 129.14 yesterday. The spike in the US 10-year bond yield above 3% at 3.04% (2.93% yesterday) lifted this USD/JPY pair. Despite deteriorating risk appetite, traders could not ignore widening yield differentials between US and JPY rates. The Japanese 10-year JGB yield was unchanged at 0.22%.

On the lookout: Today’s calendar releases will see more choppy trading after an already volatile week. Japan starts with its Tokyo Core CPI report (f/c 1.8% vs. 0.8% previous). The Reserve Bank of Australia releases its monetary policy statement (11:30 a.m. Sydney). Switzerland kicks off Europe with its unemployment rate for April (f/c 2.2% vs 2.4% – ACY Finlogix). Germany follows with its March industrial production (m/mf/c -1% vs. 0.2%). The UK is next with its Halifax UK house price index for April (m/mf/c 0.8% from 1.4%; y/yf/c 10.1% to from 11% -FX Street). The UK construction PMI for April follows (f/c 58 of 59.1 – ACY Finlogix). Canada kicks off North America with its April employment change (f/c 55,000 vs. previous 72,500 – ACY Finlogix), Canada’s April unemployment rate (f/ c 5.2% vs. 5.3% – ACY Finlogix). The E. /c 34.7 of 34.6 – ACY Finlogix). Canada releases its April IVEY PMI (f/c 70.0 from 74.2 – FX Factory).

Business Outlook: Following the fall in rates after the FOMC rate hike, the dollar rebounded against all its rivals after Fed Chairman Jerome Powell made it clear that further significant rate hikes were ahead. Powell said additional hikes of 0.50% “should be on the table at future meetings” in June and July. This saw the Dollar Index (DXY) break through the resistance level of 103.50 with 104.00 (November 2002 high) close at hand. Today sees the release of April payrolls in the US, which promise more choppy trading. Nonfarm payroll increases in the United States in April are expected to fall to a median of 391,000 from 431,000 previously. Look at the NFP number. A payroll increase of less than 350,000, say 320,000 or less could see the greenback plunge. An NFP gain of over 400,000 would see the DXY break through 104.00. One thing is certain, expect more volatile trading ahead. It’s Friday though, take it easy, but save those pewter helmets. And get ready to rumble once again!

  • EUR/USD – the euro continues to trade heavily, and its overnight reversal suggests more selling ahead. Market sentiment on the common currency is very negative. The common currency has immediate support at 1.0510 followed by 1.0485. A break below 1.4085 would see support at 1.0450 then 1.0420 tested. Immediate resistance is at 1.0580, 1.0610 and 1.6040. Expect more choppy trading today in the likely range of 1.0470-1.0620. Prefer to sell rallies, we might see parity around the corner.
  • GBP/USD – The pound saw strong selling emerge after the Bank of England voted to raise its main bank rate to 1% from 0.75%. Following comments from policymakers who saw their UK growth outlook deteriorate due to runaway inflation, the UK currency was pounded lower. The Pound closed at 1.2360 from 1.2630 yesterday. Immediate support stands at 1.2330 (overnight low 1.2325) followed by 1.2300 and 1.2270. Immediate resistance can be found at 1.2400, 1.2450 and 1.2500. Look for another choppy trading session in this currency pair, likely in the 1.2320-1.2570 range.

(Source: Finlogix.com)

  • AUD/USD – The Aussie Battler pulled back on broad-based US dollar strength and weakening Asian and emerging market currencies. The Australian Dollar has closed at 0.7110 since opening at 0.7252 yesterday. On the day, immediate support can be found at 0.7075 (overnight low at 0.7077). The next level of support is at 0.7045 and 0.7015. On the upside, immediate resistance stands at 0.7145, 0.7185 and 0.7205. With the market in risk-off mode, the preference is to sell AUD/USD rallies. Likely range, 0.7070-0.7230. Only an extremely weak US Payrolls report could renew the rise of the Australian dollar.
  • USD/JPY- the US dollar’s rally against the yen was subdued due to souring risk sentiment. Despite rising US bond yields, the greenback settled down 0.70% against the Japanese yen at 130.20 (129.14 yesterday). Immediate resistance stands at 130.55 (overnight high). This is followed by 130.85 and 131.05. Immediate support can be found at 129.85, 129.50 and 129.20. Look for a volatile session in this currency pair with a likely range today of 129.30-130.30. As tonight’s US payroll report approaches, just trade the range.

Have a top trading and Friday in front of all, keep those pewter helmets. All the best for the weekend.