Swiss banks are traditionally known for avoiding publicity, and the same can be said for the Swiss franc, which is usually fairly steady and doesn’t make the headlines. Earlier this month, however, the Swissie hit a milestone, as it achieved parity with the US dollar, the first time that’s happened since December 2019. Swiss franc flirts with parity The Swiss franc was steamrolled by the US dollar in April, as USD/CHF surged by 5.48%, its best one-month performance since May 2012. The dollar extended its gains and pushed above parity in mid-May, but the Swiss franc has since battled back and is currently trading around the 96 level. Why did the Swiss franc slide so quickly? One key reason is the newfound hawkishness of the … [Read More...]
Japanese yen rises on strong BoJ CPI
After several days of trading sideways, the yen has posted strong gains on Tuesday. In the North American session, USD/JPY is trading at 126.58, down 1.02% on the day. The yen is currently trading at its highest level in five weeks. BoJ CPI stronger than expected The Bank of Japan’s preferred inflation gauge, BoJ CPI, surprised the markets with a gain of 1.4% in April, higher than the consensus estimate of 1.0%. The index was up from 1.1% in March and is reflective of inflation moving higher. Of course, Japan is not facing the surging inflation which has hit the US, UK and other developed economies, but it is a significant change nonetheless, after years of deflation. Japan’s CPI excluding fresh food is expected to … [Read More...]
Aussie rebounds on jobs report
Unemployment falls to record low The Australian dollar has rebounded on Thursday. AUD/USD is trading at 0.6980 in the European session, up 0.38% on the day. Australia’s April employment report was a further confirmation that the labour market remains tight. The economy created 4,000 new jobs, which is a marginal gain. However, there was an impressive gain in the number of full-time jobs (92.4 thousand), as part-time jobs declined (88.4 thousand). This move towards more full-time jobs should translate into stronger consumer spending. Even more importantly, the unemployment rate fell to a record low of 3.9%, down from 4.0%. The employment data was solid but not spectacular, which means that the RBA will most likely deliver a modest 0.25% rate hike at the June … [Read More...]
Pound stems bleeding, retail sales next
The British pound has reversed directions on Thursday, after sliding 1.22% a day earlier. GBP/USD is trading at 1.2402 in the European session, up 0.50% on the day. The UK releases retail sales on Friday, with an estimate of -0.2%, which would mark a third successive decline. Red-hot inflation gets hotter UK inflation continues to accelerate, and the April CPI of 9.0% unnerved investors and sent the pound tumbling lower. CPI jumped from 7.0% in March, and the only sliver of good news was that the reading was lower than the forecast of 9.1%. Core CPI rose to 6.2%, up from 5.7%, indicating that inflationary pressures are broad-based. This means that the cost of living crisis isn’t going away anytime soon. In fact, it … [Read More...]
Pound yawns on mixed retail sales
The British pound is drifting on Friday, after showing unusually strong volatility this week. The pound rebounded on Thursday, racking up gains of 1.06% and briefly breaking above the symbolic 1.25 line. UK retail sales showed a strong gain in April, with a gain of 1.4% MoM. This followed a decline of 1.2% in March. However, on a yearly basis, sales volumes were 4.9% lower, as the broader picture looks grim. The monthly gain for March may have been a blip, as consumers were hit with higher household energy costs as well as an increase in taxes. Add into the mix inflation at 9.0% and possibly heading into double-digits, and it’s difficult to envision retail sales moving higher. Consumer confidence hits record low The GfK consumer … [Read More...]
Is the yen making a comeback?
After a brutal slide over the past two months, the Japanese yen is showing some bounce in its step. Japanese yen bounces back The yen registered 10 straight losing weeks but finally ended that nasty streak last week, with gains of about one per cent. Barring any surprises today, the yen will repeat with another strong week. On Thursday, USD/JPY dropped to 127.02, its lowest level since late April. Has the yen turned the corner? The US dollar pummelled the yen in the months of March and April, and earlier this month USD/JPY touched 131.34, its highest level in some 20 years. The yen’s descent was rapid and drew warnings from the BoJ and Japan’s Ministry of Finance. There was speculation that the exchange rate was nearing … [Read More...]
New Zealand dollar roars
The US dollar is in retreat on Thursday, and the New Zealand dollar has taken full advantage. NZD/USD has surged 1.57% and is trading at 0.6390 in the North American session. The New Zealand government released its annual budget today and announced measures aimed at tackling the cost of living crisis. These include weekly cash payments and lowering fuel taxes. Inflation climbed to 6.9% in Q1, up sharply from 5.9% in Q4 of 2020. Inflation remains huge headache for RBNZ These moves may provide some relief for consumers, but they won’t bring down spiralling inflation. That daunting task is the responsibility of the RBNZ, which like other major central banks, finds itself playing catch-up with the inflation curve. The RBNZ has embarked on an aggressive tightening … [Read More...]
UK inflation soars to 9%
Pound slides after CPI report The British pound has taken a tumble after April CPI jumped to 9.0% YoY, up sharply from 7.0% in March. GBP/USD has fallen 100 points today and is trading at 1.2390 in North American trade. UK inflation continues to run at a 40- year high, and the cost of living crisis is undoubtedly keeping Finance Minister Sunak and BoE Governor Bailey awake at night. Core CPI didn’t provide any relief, as it rose to 6.2%, up from 5.7% prior. This indicates that inflationary pressures are broad-based and aren’t about to ease anytime soon. The only positive in the CPI release was that it was a bit lower than the forecast of 9.1%, but I’m sure few in the City of … [Read More...]
British pound soars on strong jobs data
The British pound continues to rally on Tuesday. GBP/USD is trading at 1.2463 in the European session, up 1.15% on the day. UK employment numbers sparkle The tight UK labor market is getting even tighter, as reflected in the March employment report. The unemployment rate fell to 3.7% (3.8% prior), below the 3.8% forecast and its lowest level since 1974. Employment change jumped by 83 thousand, smashing the estimate of 5 thousand. Wage growth in Q1 was up 7%, but without bonuses, the gain was only 4.2%. This means that inflation is far outstripping wage growth and exacerbating the cost of living crisis for UK households. The UK continues to grapple with a severe shortage of workers, as Covid resulted in some 500 thousand workers leaving their jobs, and many … [Read More...]
Japanese yen remains directionless
The Japanese yen has posted slight gains on Tuesday. In the North American session, USD/JPY is trading at 129.32, up 0.17% on the day. The US dollar pummelled the yen in the months of March and April, but the yen has held its own in May. Still, USD/JPY remains at high levels and the 130 line, which has psychological significance, remains vulnerable. If there is a line in the sand for the Japanese government or the BoJ to intervene and prop up the yen, it certainly is not the 130 level, as the dollar broke through this line without a response. The yen is extremely sensitive to the US/Japan rate differential, and with the BoJ demonstrating that it will tenaciously defend its yield curve, the yen is … [Read More...]
Pound yawns after Bailey warnings
The British pound is trading quietly on Monday, as the currency markets have started the week with a whimper. BoE’s Bailey says dark times ahead BoE Governor Bailey testified before lawmakers earlier today, and his message was a grim one. The BoE has predicted that soaring inflation could top 10%, and Bailey today admitted that “this is a bad situation to be in”. Bailey said that the Ukraine war could cause a further energy shock and that his concern about the surge in food prices was “apocalyptic”. Bailey gets full credit for not sugar-coating what is a difficult economic situation, but his candidness will not help support the struggling pound, which hasn’t posted a winning week since mid-April. I appreciate Bailey’… [Read More...]
New Zealand dollar stabilizes
The New Zealand dollar is headed for its seventh consecutive losing week. NZD/USD has declined 2.51% this week and the currency is trading at July 2020 lows. The currency plunged 1.01% on Thursday but has steadied on Friday and is trading at 0.6244. New Zealand’s Manufacturing Index slowed to 51.2 in April, down from 53.8 in March. The reading didn’t have much impact on the New Zealand dollar, which remains under pressure after a sharp drop on Thursday. This marked the lowest level since August 2021, and the index has fallen close to the 50.0 level, which separates contraction from expansion. Manufacturers continue to point to labour shortages and supply chain disruptions as key problems for the sector, along with Covid-19. The slowdown in manufacturing follows Inflation Expectations for Q2, … [Read More...]
British pound’s woes continue
The British pound can’t seem to find its footing. GBP/USD hasn’t had a daily winning session since May 4th and closed on Thursday below the 1.22 line, for the first time since May 2020. In the European session, the pound is trading quietly at the 1.22 line. Recession fears, negative growth weighing on sterling The UK treated the markets to a data dump on Thursday, but the news was not positive. UK growth for Q2 showed a 0.8% gain, down sharply from 1.3% in Q4 of 2020 and missing the 1.0% estimate. In March, the economy contracted by 0.1%, compared to a 0.1% gain in February and shy of the estimate of 0.0%. Investors never like to hear the phrase ‘negative growth’ and the March GDP report … [Read More...]
Euro under pressure, falls below 1.04
The euro has stabilized on Friday, after a dreadful Thursday in which EUR/USD fell 1.26%. Russian announces sanctions The euro continues to struggle and is trading at lows last seen in January 2017. The Ukraine war has taken a bite out of the eurozone economy and sent the euro tumbling. The latest development weighing on the euro was Russia’s announcement of sanctions on some European gas importers, at a time when the EU is trying to garner support for a ban on Russian oil. Germany has said that it could manage without Russian oil, but the main stumbling block to the ban appears to be Hungary, which is very dependent on Russian energy supplies. The euro has broken through major support lines at 1.08 and 1.05, and if … [Read More...]
British pound dips on soft GDP
The pound continues to lose ground and is trading at its lowest level since May 2020. GBP/USD fell below the 1.22 level earlier and hasn’t had a daily winning session since May 4th. Negative growth raises alarm bells The UK economy is struggling, a grim fact which was brought home by the Q1 GDP report earlier today. On a quarterly basis, GDP came in at 0.8%, down from 1.3% in Q4 of 2020 and shy of the 1.0% estimate. Even worse, the economy contracted in March by 0.1%, after a 0.1% gain in February. This missed the forecast of 0.0%. The negative growth reading was a result of the crushing inflation that has gripped the UK. CPI hit 7% in March and the markets are braced for a … [Read More...]
New Zealand dollar sinks after US CPI
This week has gone from bad to worse for the New Zealand dollar, as NZD/USD has taken a tumble on Thursday. In the North American session, NZD/USD is trading at 0.6248, down 0.74% on the day. The currency has dropped 2.66% this week and is trading at lows not seen since June 2020. US inflation stays hot The US inflation report for April showed that CPI eased, but the decline was much smaller than expected. US CPI dropped from 8.5% to 8.3%, above the estimate of 8.1%. This chilled any speculation of an ‘”inflation peak”, as the markets digested the fact that even if inflation is moving lower, it could do so at a very slow pace. For the Fed, the high inflation reading confirms … [Read More...]
Pound rises on US inflation, GDP looms
The British pound is in positive territory, as the currency tries to break a four-day losing streak. In the European session, GBP/USD is trading at 1.2355, up 0.36% on the day. US inflation slows, but is higher than expected US inflation dipped in April, but still came in above the forecast. Headline CPI dropped from 8.5% to 8.3%, above the estimate of 8.1%. Core CPI came in at 6.2%, down from 6.5% but above the estimate of 6.0%. The US dollar is broadly lower as a result, although the decline would have been sharper had the estimates been right on. Today’s inflation data will no doubt result in some headlines proclaiming an “inflation peak”, but I would caution that it seems premature to declare … [Read More...]
Pound stable but markets uneasy
The British pound is in calm waters early in the week, as GBP/USD trades slightly above the 1.23 line. There are no major releases out of the UK or the US, which means that the pound should enjoy a quiet day. Can the BoE get it right? The British pound plunged over 2% last Thursday, a most difficult feat, considering that the Bank of England actually raised interest rates at its meeting that day. What went so wrong for the pound? The BoE dutifully raised rates at the meeting, but investors lasered in on the central bank’s downbeat message which warned of a recession, while at the same time forecasting that inflation will top 10% this year. The UK is experiencing soaring inflation at growth remains … [Read More...]
Euro steady after G-7 pledge oil ban
G-7 commits to ban Russian oil The euro has started the week quietly, although there have important developments in the West’s sanction battle with Russia. On Sunday, G-7 leaders pledged to phase out or ban the import of Russian oil. As the war in Ukraine continues, the West has ratcheted up its sanctions against Moscow. Some European countries, such as heavy-weight Germany, have been reluctant to embrace an outright ban on Russian oil, since 25% of Germany’s oil comes from Russia. The war has taken a toll on the eurozone economy, and there are concerns that a complete ban on Russian oil would tip Germany into a recession. The G-7 commitment to “phase out” Russian oil is a compromise that will allow eurozone … [Read More...]
Japanese yen hits 20-year low
The Japanese yen is slightly lower at the start of the week. In the Asian session, the yen fell as low as 131.35, which marked a 20-year low. Will BoJ step in to defend the yen? The speed of the Japanese yen’s depreciation has been remarkable, falling 12% against the US dollar in just three months. The formula for the yen’s slide has been relatively simple – US Treasuries have been moving higher, while the BoJ has fiercely defended its yield control curve, capping the 10-year yield at 0.25%. Since the yen is extremely sensitive to the US/Japan rate differential, the dollar has pummelled the yen. Moving forward, the BoJ isn’t about to change its stance and allow JGB yields to increase. The central … [Read More...]