The dollar index retreated to around 90.4. U.S. CPI rose in April at the largest rate in nearly 12 years. This has intensified market discussions about rising inflation triggering interest rate hikes. The U.S. money market sees a 100% probability that the Fed will raise rates by 25 basis points by December 2022, compared to 88% previously. However, from the recent statements of several Fed officials, it seems that the Fed is still in no hurry to taper its easing policy. At present, Biden is still further optimizing the anti-epidemic policy by allocating funds and other means to accelerate the vaccination rate.
In addition, in terms of economic stimulus plan, he also expressed willingness to make compromises. Comprehensive last week’s market, beautiful CPI data once supported the dollar index recovery, but with the April retail sales data did not see growth, the Fed’s loose monetary policy is expected to continue, the dollar index failed to continue the rally, back down to 90.4 near.
Gold prices returned to near $1850. Next, let’s focus on gold. At the time of the dollar index higher, gold once lowered the $1808 mark. However, the Fed’s emphasis on maintaining easing, the Israeli-Palestinian conflict, the plunge in bitcoin, and the worsening Asian epidemic have supported gold, which has now climbed to near $1,850.
Silver has resumed its rally. Silver, which had also previously shaken to the downside, hit a low of $26.7, then gradually moved higher and is now trading above $27.5.
The euro is back above the 1.21 handle. In non-U.S. currencies, the euro’s movement last week was roughly opposite to that of the dollar. The euro fell and then rose against the dollar, with a low of 1.2050, and has now returned to above the 1.21 mark.
The performance of the British pound is more remarkable. Let’s look at the British pound again. GBPUSD has had two weekly positive streaks, touching an intraday high of 1.4167, a new high since Feb. 25. Better-than-expected UK GDP data helped the pound stay strong. In addition, the British vaccination campaign has allowed the economy to gradually reopen, also boosting the pound.
U.S. oil was broad-based. Finally, a look at the oil market. U.S. oil has been broadly oscillating recently, though it has generally held near $65. The news of the U.S. fuel pipeline being shut down in the first three days of last week due to a cyber attack, overlaid with the Israeli-Palestinian conflict, once triggered market concerns on the supply side, and oil prices moved higher as a result. However, with the resumption of U.S. pipeline operations, coupled with the risk of an epidemic in India remains, oil prices retracted some of the gains. Some analysts expect that it may be difficult for crude oil to break through the highs set in early March until the epidemic in India improves.
The euro maintained a moderate rise focus on resistance 1.2182
Credit Suisse released a report saying that the euro still maintains an upward bias against the dollar. The pair will test 1.2212 and 1.2243 after reaching 1.2182 or 1.2185, and if it rises further, it will test the upper edge of the oscillator range and year-to-date highs at 1.2325 and 1.2350. If it falls below 1.2051, it will test important support at 1.1999-1.1986.
US-JPY expected to extend gains, watch out for highs at 110.97
Credit Suisse notes that if the USDJPY breaks out of the 109.95 -109.97 range, it will continue to rally to the March high of 110.97 and thereafter to the level it was at in February 2020, around 110.83 -110.97. After that, the pair is expected to encounter resistance at that level, but once it breaks through it, it will test the important resistance level at 111.96 -112.40.
U.S. and Canada are expected to go further lower, with a drop to 1.20 in the third quarter
ABN AMRO said that the interest rate attractiveness of the Canadian dollar will remain relatively high and provide continued support for the Canadian dollar due to the Bank of Canada’s relatively hawkish performance among G10 members. In addition, with Canada’s accelerated vaccinations and further improvement in outbreak control, coupled with the boost in oil prices in recent times, the dollar is expected to weaken further against the Canadian dollar, with the U.S. dollar expected to weaken to 1.20 in the third quarter and, as the dollar is expected to continue to weaken, the U.S. dollar is expected to end the year down at 1.16.
Wednesday 14:00 UK April CPI or strong performance
First of all, let’s focus on the UK CPI data to be released. British CPI in March recorded a monthly rate of 0.3% and an annual rate of 0.7%. The financial website Forexlive commented that, like most countries, the UK CPI rise in March was due to a base effect, so it needs to be taken into account when looking at the data. More like this is expected in the coming months, especially if the economy reopens further and gradually.
Currently, the market is expecting the UK CPI monthly rate of 0.5% in April, if the published value is larger than expected, or positive for the pound; conversely, it will be negative for the pound.
At the same time, investors also need to pay attention to the annual CPI rate and the monthly retail price index published at the same time, if this set of data is better than expected, the pound may strengthen.
Wednesday 17:00 Eurozone CPI in April is difficult to make waves
Also on Wednesday, the eurozone will also release CPI data. Last month’s Eurozone CPI was recorded at a monthly rate of 0.9% and an annual rate of 1.3%. the preliminary monthly CPI rate for April was 0.6% and the preliminary annual rate was 1.6%. Overall, the final value of this data set will not change much.
Currently, the market expects the euro zone April CPI monthly rate of 0.6%, if the published value is greater than expected, or good for the euro; conversely, will be negative for the euro.
Also published is the final CPI annual rate, the current market is expected to 1.6%. According to the historical pattern, the CPI final value of the euro’s impact is not large, you pay attention to the good.
Thursday 02:00 Fed may maintain a cautious dovish stance
Finally, to focus on the Fed’s April meeting minutes. Last month, the Fed announced its interest rate resolution and policy statement, keeping the benchmark interest rate unchanged at 0%-0.25%, keeping the monthly bond purchase size unchanged at $120 billion, and keeping the excess reserve rate, overnight reverse repo rate, and discount rate unchanged, all in line with market expectations.
The FOMC statement noted that U.S. economic activity and employment have strengthened, but the risks to the economic outlook remain, and the path of economic development depends largely on the progress of the new crown epidemic, and the ongoing public health crisis will continue to be a drag on economic activity, employment and inflation in the near term.
The FOMC reiterated that the Fed will maintain the federal funds rate at current levels until the labor market reaches full employment and inflation reaches 2% and is expected to exceed that level for some time, and will also continue to purchase at least $80 billion of Treasuries each month, as well as at least $40 billion of home mortgage-backed securities.
Federal Reserve Chairman Jerome Powell said that it is not the time to start talking about tapering the size of bond purchases, economic activity has just recently picked up and it will take some time to reach the standard, and controlling the spread of the new coronavirus is the most important factor affecting the economic recovery.
Based on this, we believe that the Fed or stressed that the economy and employment has strengthened, but the economic outlook remains at risk; the Fed will maintain the current interest rates and reiterate that it is not appropriate to discuss tapering of bond purchases. In other words, the Fed will continue to maintain a cautious dovish stance, which will, to a certain extent, depress the dollar index.