What you need to know on Friday, April 22:
Risk-off trading conditions triggered in part by a surge in US yields Amid aggressive Fed line rhetoric, US stocks fell on Thursday and the safe-haven US dollar insurance outperformed, especially against its more risk-sensitive G10 peers like the Australian dollar, New Zealand dollar and Canadian dollar. The US Dollar Index (DXY) reversed an earlier drop below the 100.00 level to climb back up to 100.60, where it trades with daily gains of around 0.3%.
Fed Chairman Jerome Powell, as expected, signaled that 50bp rate hikes were likely in upcoming meetings and normally more dovish FOMC member Mary Daly even mentioned the possibility of a move from 75 sc AUD/USD and NZD/USD traded with respective losses of 1.0% and 1.1%, with the latter performing slightly worse after New Zealand’s Q1 consumer price inflation figures were not as high as expected. feared. Meanwhile, USD/CAD rose from below 1.2500 towards 1.2600 as stronger oil prices failed to offer any respite to the Canadian dollar.
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 saying nothing new in her remarks at an IMF panel, but ECB Vice President , Luis de Guindos earlier in the day hinting at the possibility of a first rate hike in July. His comments seemed to endorse recent developments by some of the ECB’s most aggressive members in recent days pushing for a July hike and seeing the ECB step up bets as a result.
This supported EUR/USD at the time, with the pair rallying as high as its 21-day DMA at 1.0930 in early European trading, only for the pair to later pull back 100 pips to as low as 1.0850 during US trading. In the US the dollar regained ground, where it is now trading around 0.2% lower on the day. GBP/USD had similar price action, attempting to break above its 21 DMA at the 1.3075 zone only to then pull back to the 1.3025 region where it is now trading down roughly 0.3% on the day.
Meanwhile, higher yields in the US (and elsewhere) saw the yen struggle, though it performed slightly better than risk-sensitive peers amid safe-haven demand as stocks fell. . USD/JPY gained around 0.4% to recover to 128.35, with bulls eyeing a possible retest of highs above 129.00 if 1) US yields continue to rise and 2) the BoJ continues to rally. reiterating its dovish stance and defending its target range of yield curve control
In the next session, the global flash PMIs will be released, although they probably won’t affect FX markets much as the focus remains on central banks, policy divergence and yields. UK and Canadian retail sales figures for March should generate some interest, as well as more comments from ECB President Lagarde and BoE Director Andrew Bailey.
Source: Fx Street
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