April 18, 2024

“The markets have paused for thought today and trimmed some of the dollar’s gains following its sharp rally last week, and the possibility of FX intervention has ramped up this morning as the US, Japan, and South Korea joined together for a press release on recent volatility. We’re looking to unemployment claims in the US and retail sales in the UK for the next clues towards the end of the week.”

Sam Cornford – Head of Trading

Main Headlines

President Joe Biden proposed sharply raising US tariffs on Chinese aluminium and steel yesterday, as part of efforts to appeal to steelworkers in Pennsylvania. Biden’s plan, unveiled during a re-election campaign stop in Pittsburgh, would increase tariffs to 25%, up from levels set by his predecessor Donald Trump. This move carries the risk of escalating tensions with Beijing.

British house prices experienced a modest decline of 0.2% on an annual basis in February, marking the smallest decrease in eight months, according to data from the Office for National Statistics released on Wednesday. This follows a revised 1.3% drop in January. Additionally, the ONS reported that its measure of private rents surged by 9.2% in the year to March, the largest increase since records began in 2015, up from 9.0% in the 12 months to February.

GBP

The pound has clawed back some of the ground lost against the dollar in the last week, after some sticky inflation figures dented hopes for rate cuts this year. Much of the rhetoric flying around at the moment has focused on comparisons between the US and UK inflationary stories, and for some whether this is a useful exercise at all. BoE Governor Bailey was again upbeat in his remarks yesterday, where he argued that the UK faces less inflation risk than the US, contending that inflation was broadly moving in line with bank forecasts and that it is due for a sharp fall next month. Core inflation remains stronger in the UK (4.2% vs 3.8%), but the pace of softening is seemingly much quicker – at least according to the BoE and the IMF – yet the market’s expectations for rate cuts are the same for both. Today is quiet but we’ll get some retail sales data first thing tomorrow morning, where the consensus is for a 0.3% expansion in March.

EUR

The euro is happily riding a retracement in the dollar’s rapid rally, and pulled back against its one-month lows versus the pound after Bailey threw out some dovish commentary. The PMIs next week are the next big data impulse for the eurozone, so for now the focus is on the ECB speakers. President Lagarde said yesterday that the central bank watches FX market moves closely, although many of those who have delved deeper into the potential inflationary effects of a weaker euro expect only a very steep currency decline against the dollar to hold the ECB back in cutting rates. Among the other speakers, there is an increasing consensus on the high likelihood of a June cut, but there is far less agreement on whether another will follow in July and the pace thereafter.

USD

The dollar has cooled off over the past couple of days as traders in the bond markets stop for a rethink and retrace some of the sharp moves higher in US Treasury yields. The most interesting development this morning was a joint statement with officials from Korea and Japan agreeing to communicate closely on movements in the FX markets, following the sharp falls in the yen and the won versus the dollar. We haven’t heard any new rhetoric from Tokyo – we are very familiar with their desire for the yen to ‘move stably, reflecting fundamentals’ by now – but this time it seemingly has the US’ backing and something like tacit approval for intervention should these moves continue. This step up in the verbal intervention spooked those shorting the yen and pulled USD/JPY off its 34-year high. Jobless claims will be the main cue for the dollar today, although this has been very consistently fluctuating around the 210K mark of late. A raft of Fed speakers follows, with Bowman, Williams, and Bostic among those taking to the podium about monetary policy.

Markets

US stocks ended in the red again yesterday in a week to forget for Wall Street, with falling tech shares knocking the Nasdaq down by 1.2% while crude oil experienced a sharp drop late in the session. In Asia, however, equities have made their biggest gains in a month overnight as Asian currency officials warn against outsized depreciation and worries about the Middle East cool off.

Main Economic Events (All Times CET)

3:30am: Australian Employment Change
2:00pm: ECB’s Nagel speaks
2:30pm: US Unemployment Claims
4:00pm: US Existing Home Sales & CB Leading Index
5:00pm: Fed’s Bostic speaks

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