Weekly market update 28th May – Dollar dipped lower following FOMC meeting minutes, BOC interest rates decision and US jobs report in focus this week
Weekly market update 28th May – Dollar dipped lower following FOMC meeting minutes, BOC interest rates decision and US jobs report in focus this week
1. The Dollar index fell below 102 on Friday, hovering at its lowest level in a month, after data revealed that consumer spending increased more than expected although PCE inflation declined last month. FOMC minutes released earlier this week hinted that the Fed would not pursue further aggressive rate hikes and provided some relief on the Fed’s forward guidance. While most policy makers believed that rate hikes of 50 basis points would be reasonable to contain inflation in light of the strong economy and tight labour market, the extent of tighter monetary policy for the rest of the year remains uncertain with the Ukraine conflict. In the coming week, investors will be keeping a close watch on the jobs report, which is expected to reflect the tight labour market and low unemployment at 3.5%. Other notable publications include the ISM Manufacturing and services PMI as a gauge of price indications and supply conditions from key manufacturing hubs around the world.
2. The Euro rose to $1.07, its highest level in four weeks, after the ECB took a more hawkish stance, with ECB President Christine Lagarde stating that the central bank will likely exit negative interest rates by the end of the third quarter. On the data front, the most recent PMI data showed that growth remained strong in May, buoyed by the service sector, while cost pressures eased for the second month but remained high. The S&P Global Flash Eurozone Services PMI dipped to 56.3 in May 2022 from 57.7 in April, well below market expectations of 57.2, but still pointed to the second-strongest expansion in the services sector in the previous eight months, owing to pent-up pandemic demand. In addition, Germany’s Ifo Business Climate indicator surprisingly jumped to a three-month high of 93, indicating that Europe’s largest economy is still resilient against recession. In the coming week, investors will be keeping their eyes peeled on inflation figures for the Eurozone, which will provide additional insights into the region’s economy and inflation. Elsewhere, the British pound surged to above $1.26, close to its highest level in four weeks, on hopes that the new Cost of Living Support package will help to boost consumer spending and alleviate mounting price pressures and living costs.
3. The Australian dollar surged beyond $0.71, reaching its highest level in three weeks on the back of a weaker greenback. Robust April retail sales data showed that consumers held up well in the face of rising inflation, paving the way for more interest rate hikes. Markets expect the RBA to hike rates in June, citing the economy’s resilience to high inflation and global headwinds. Meanwhile, anticipation for the Bank of Canada to continue its tightening cycle by lifting its benchmark rate by 50 basis points, the third consecutive boost in borrowing costs could buoy demand for the Loonie. Governor Macklem of the Bank of Canada earlier stated that the central bank is ready to raise interest rates “forcefully if needed” to rein in inflation.
4. Crude oil hit an 11-week high of 115.61 USD/Bbl, as fears over tighter global supply and rising demand persisted. The latest EIA data indicated a larger-than-expected drop in US oil stockpiles last week, reflecting the tight supply, exacerbated by the Ukraine crisis. Meanwhile, the EU and Hungary are still battling over a ban on Russian oil imports, with Hungary refusing to support the EU’s embargo until all issues raised by the sanction are resolved. At its June 2nd meeting, OPEC+ is widely expected to stick to last year’s oil production deal, lifting July output targets by 432,000 barrels per day. Elsewhere, gold surged beyond $1,850 an ounce on Friday, putting it on course for its second straight weekly gain, buoyed by the recent dollar weakness.
