The North American session was initially highlighted by the number of new weekly unemployment claims. Estimates were 231,000 to 215,000, beating expectations. This was the highest level since November 2023. It’s only been a week, and the spikes tend to be somewhat seasonal. Easter was early this year, so that may have had an effect. It will take several more weeks to find out whether these numbers were just a whim or the beginning of a new trend in jobs and employment. Last Friday’s US NFP employment report showed weakness, and today’s report certainly caught the market’s attention.
After all, the US dollar is the weakest of the major currencies, reversing, and is about to end the day further down from yesterday’s gains (the US dollar was the strongest of the major currencies yesterday).
The Australian dollar ended the day as the strongest of the major currencies.
The US dollar was the weakest of the major currencies today.
Another important event was the Bank of England’s interest rate decisions. The BOE left interest rates unchanged as expected, but the vote was 7-2. Two opponents supported the 25 basis points easing policy.
Governor Bailey highlighted a variety of insights during his press conference. He noted that there is growing skepticism among businesses about their ability to pass on higher (inflation-friendly) wage costs, reflecting broader economic uncertainty. Mr Bailey emphasized that recent movements in market interest rate expectations have been heavily influenced by US actions, and that UK inflation trends are very different. He also pointed to problems with labor force participation data that make it difficult to assess real-time economic changes.
Mr Bailey said the central bank was not yet at the stage of cutting interest rates. Rate cuts are likely to be needed in the coming quarters, and could be more significant than the market is currently expecting (this was a surprise). He cautioned that interest rate decisions depend on data. Governor Bailey assured that monetary policy was effectively steering inflation towards its target, but he expected inflation to pick up in the second half of the year. Although wage and service inflation has been higher than expected since February, he cautioned against overinterpreting these signals, saying that no secondary effects on domestic wages and prices have been considered so far. He emphasized that the decline is expected to be faster than previously anticipated.
Overall, the comments were more dovish. And although the pound was on the downside, by the end of the day it had appreciated by 0.23% against the US dollar and by 0.16% against the yen.
Later in the day, Pill, the BOE’s policymaker, said that while he has increased confidence to begin easing policy restrictions, he recognizes that the time to act is not yet. The decision to cut interest rates is pending further data and is conditional on no significant economic disruption. Pill stressed that interest rate cuts could be considered in the coming months and stressed the importance of a data-driven approach. He further pointed out that the process of controlling inflation is still ongoing and that some economic restrictions need to be maintained for the time being.
ECB’s DeGuindos also chimed in today, suggesting: Future inflation conditions are likely to be shaped by a slowdown in globalization and regionalization of markets, potentially resulting in higher inflation rates than previously experienced.. This is particularly relevant for the situation in Europe after Russia’s invasion of Ukraine, where economic priorities are expected to shift from civilian needs (‘butter’) to military spending (‘artillery’). As a result, inflation could rise and lead to moderate inflation. Growth is slow. Furthermore, although the European Central Bank (ECB) operates independently from the Federal Reserve, global policy interactions remain important, especially given the influence of the US dollar and the differences between US and euro area fiscal policies. is. Notably, the US has maintained a low unemployment rate despite more expensive fiscal measures. The ECB’s decision to cut future interest rates will depend on a variety of factors, including wage trends and potential adjustments in financial markets.
In the United States, Mary Daly, president of the voting San Francisco Federal Reserve, shared insights reflecting the complexity and uncertainty of the current economic climate, particularly regarding inflation, following recent FOMC interest rate decisions. Daly said the past three months have created considerable uncertainty about the outlook for inflation in the coming months. He cited mixed signals from businesses regarding consumer demand and input prices, and highlighted a variety of potential scenarios the Fed is currently considering.
Daly emphasized that while the Fed’s balance sheet does not provide a clear indication of the future direction of monetary policy and the economic trajectory is uncertain, the Fed remains prepared to respond to a variety of potential developments. . Despite the concerns, he said there was no current evidence to suggest the labor market was reaching a problematic stage. Rather, she saw a strong labor market as tied to persistently high inflation, and warned against relying solely on productivity gains to curb inflation.
The comments further detailed that while the Fed’s policy remains restrictive, it may take time to effectively control inflation. Daly noted that although the labor market is showing signs of cooling, this is expected and consistent with a return to more normal conditions. He acknowledged that inflation is occurring, albeit at a slower pace than last year, and also cited improvements in supply chains. The Daily concluded by stressing that there is no need for drastic measures to rein in the economy, as current indicators do not justify such measures.
Technically, EURUSD ended the day near the high of 1.0781, just a few pips away from the 50% midpoint of the decline from March highs. Its level will be 1.07906. The 200-day moving average is also slightly above 1.0793. A rise above these levels on a new trading day could increase the bullish bias. If it stays below, it could lead to further selling.
GBPUSD also extended to new highs at the close, testing a cluster of key technical levels. The 100-hour and 200-hour moving averages and the 38.2% retracement of the decline from the March highs come to 1.25255. Above that is the 200-bar moving average 1.2535 and the 200-day moving average 1.25421 on the 4-hour chart. On a new day, that area will become a resistance line, a level that defines potential risk for sellers who want to sell the rally. Remember, BOE was more dovish.
USDJPY gradually regained its gains during US trading and ended the day almost unchanged. On the downside, the 200-hour moving average is 155.227 (current price is trading at 155.469). A move below that MA level will be needed for sellers to have more confidence in the new trading day.
In the US stock market, the Dow Jones Industrial Average rose for the seventh day in a row, the S&P index closed at a one-month high, and the Nasdaq index stopped its decline for the first time in two days.
- The Dow Jones Industrial Average rose 0.85%.
- S&P index rose 0.51%
- Nasdaq index rose 0.27%
In the U.S. Treasury market today, yields rose early and then closed lower. A strong 30-year bond auction also supported the bullish trend in the bond market (I gave it a B grade). At the end of the day:
- 2-year yield 4.817%, -2.5 basis points
- 5-year yield 4.472%, -2.9 basis points
- 10-year yield 4.459%, -2.4 basis points
- 30 year yield 4.612%, -1.9 basis points
Thanks for your cooperation. Dear traders in Asia Pacific markets, I wish you a happy and healthy weekend.
Michigan Consumer Sentiment (Final Edition) will be released tomorrow.
