Articles

Oil catches a strong bid after testing last week’s low. OPEC output falls

387225   April 30, 2024 23:56   Forexlive Latest News   Market News  

Reuters is out with its latest survey of OPEC output for April. It found that production fell by 99,000 barrels per day to 26.49 million barrels per day.

The declines were led by lower exports from Iran (-50K), Iraq (-40K) and Nigeria (-50K) While Saudi output edged up 20K to 9.0 million barrels per day.

Oil has been volatile in the final day of April trading. It fell as low as $80.95 but held last week’s low of $80.88 and that prompted some buying, lifting it back to $82.09, down just 54 cents on the day. May is seasonally the strongest month of the year.

Canadian Dollar falls back on Tuesday amid broad-market Greenback bidding

387222   April 30, 2024 23:45   FXStreet   Market News  

• Canadian Dollar retreats after US morning sessionÂ’s risk-off jitters.
• Canada GDP prints below expectations, erodes CAD further.
• US wage growth accelerates again, crimping rate cut hopes.

The Canadian Dollar (CAD) eased against the Greenback on Tuesday after the American market session kicked the day off with a risk-off push after US wages outpaced expectations. Investors are gearing up for the US Federal Reserve’s (Fed) latest rate call, slated for Wednesday. 

Canada saw a further slowing in Gross Domestic Product (GDP) figures in February, further hampering the Canadian Dollar. Declines in the Antipodeans gave the CAD a boost in Pacific markets, sending the Canadian Dollar into another mixed trading day. 

Daily digest market movers: Canadian Dollar retreats in wake of Greenback jump

• Canadian MoM GDP in February rose 0.2%, below the forecast for 0.3% and falling back from JanuaryÂ’s 0.5% (revised down from 0.6%).
• US Q1 Employment Cost Index accelerated to 1.2%, beating the forecast of 1.0% and the previous quarterÂ’s 0.9% wage growth.
• Accelerating labor costs continue to plague rate-cut-hungry markets as inflation remains above Fed targets and progress on reducing price growth has stalled.
• AprilÂ’s Chicago Purchasing Managers Index (PMI) eased to 37.9, the indicatorÂ’s lowest print since November 2022.
• The Consumer BoardÂ’s Consumer Confidence Index declined to 97.0, nearly a two-year low in aggregate consumer survey responses.
• Read more: US CB Consumer Confidence declines to 97.0 in April
• US ADP Employment Change for April will print on Wednesday, forecast to tick down to 179K from 184K.
• FedÂ’s latest rate call and Monetary Policy Statement are scheduled for 18:00 GMT on Wednesday. Fed Chair Jerome Powell will hold a press conference 30 minutes after that.
• Fed is expected to hold rates steady, and investors will be looking for signs of firmer policy guidance from the Fed on when rate cuts could come.
• According to CMEÂ’s FedWatch Tool, rate cut hopes for September have been dashed, and rate markets are pricing in 51.1% odds of no cut until the November rate meeting.

Technical analysis: Canadian Dollar mixed as broader market flows push CAD around

The Canadian Dollar is broadly mixed on Tuesday, shedding half a percent against the US Dollar (USD) and around a third of a percent against the Euro (EUR). Pacific market weakness saw the CAD climb around four-tenths of a percent against the Antipodeans.

USD/CAD broke into a fresh five-day high during TuesdayÂ’s US market session, challenging the 1.3750 region as the pair bounces from a heavy supply zone between 1.3680 and 1.3630. Bids are still down from the last swing high into 1.3845, but buyers are pushing back into chart territory north of the 200-hour Exponential Moving Average (EMA) at 1.3688.

USD/CAD hourly chart

USD/CAD daily chart

European equity close: A stumble into the April finishline leading to monthly declines

387221   April 30, 2024 23:40   Forexlive Latest News   Market News  

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GBP/USD Price Analysis: Drops below 200-DMA, at cross-roads to resume downtrend

387219   April 30, 2024 23:02   FXStreet   Market News  

• GBP/USD declines 0.36% from its daily peak, under pressure from indications of rising US inflation.
• The pair struggles above the 200-day moving average at 1.2564, hinting at potential further declines.
• Support levels are seen at: November 14, 2023, high of 1.2506; breaching this could lead to further support tests at 1.2448 and the year-to-date low of 1.2299.
• A recovery above the 200-DMA could reignite bullish momentum, aiming for 1.2600, with additional resistance at the 50-DMA and 100-DMA at 1.2619 and 1.2645.

The Pound Sterling reverses its course against the US Dollar, after extending its gains past the 200-day moving average (DMA). However, data from the United States (US), showing that inflation could be picking up, as shown by the Employment Cost Index (ECI), bolstered the Greenback. Therefore, the GBP/USD trades at 1.2517 down by some 0.36%, after hitting a daily high of 1.2563.

GBP/USD Price Analysis: Technical outlook

The GBP/USD is neutral biased, though failure to cling above the 200-DMA at 1.2564 might open the door for a pullback, with traders eyeing a test of the November 14, 2023, high at 1.2506. In the event of a drop below that level, further downside is seen at the April 26 intermediate support at 1.2448, before the major plunges to the year-to-date (YTD) low of 1.2299.

On the other hand, if the pair edges above the 200-DMA that would pave the way for testing 1.2600. Once surpassed, key resistance levels emerge. The 50-DMA is up next at 1.2619, followed by the 100-DMA at 1.2645. Subsequent gains are seen above those levels, exacerbating a rally toward 1.2700.

GBP/USD Price Action – Daily Chart

US April Texas services sector outlook -10.6 vs -5.5 prior

387218   April 30, 2024 22:33   Forexlive Latest News   Market News  

• Prior was -5.5
• Revenues index vs +4.0 prior

Comments in the report:

Truck transportation

• We repair long-haul trucks. The volume just keeps going down,
  which means everyone is holding back on repairs, so we have no work.
  Inflation keeps driving our costs up. It’s not looking pretty for
  trucking.

Support activities for transportation

• We are seeing an uptick in rates and activity. The excess capacity slowly bleeding out of the market is causing this.

Publishing industries (except internet)

• Momentum is still based on intuitive smarter software revisions.
  Commercial interest is also finally increasing with better relationship
  contacts to speed credible traction and interest for adoption going
  forward. We are more focused now on marketing and sales.
• The impact of the higher rate environment seems to be catching
  up, with general purchase intent among customers flattening out. At the
  same time, budget cuts and political uncertainty have impacted our
  public sector business as well, creating additional uncertainty across
  our business.

Credit intermediation and related activities

• The stress of an election year adds to the concern citizens have about the direction of our economy.
• We recently renegotiated our $600 million debt facility. Our
  cost of funds went from 9 percent to 14 percent—that’s a pretty big hit
  to our bottom line and resulted in us increasing prices to our
  customers. Our business focus has been on forecasted easing; however,
  the reality of rates staying higher longer is creating uncertainty.
• Commercial real estate transactions are down by 70-80 percent
  according to the brokers we talk to, and our loan origination volume
  reflects that as well. Borrowers are concerned about future business
  prospects. We recently had a client decide not to take a loan to
  refinance a warehouse used in their business because they were concerned
  about their future business prospects. At the same time, the cost of
  everything we buy, from paper to electricity, is rising.
• The Federal Reserve signaling it will hold the rate at the
  current level for longer has affected our outlook negatively. One of our
  biggest issues with inflation is the cost of housing. These high rates
  do not help that, and prices of everything else are not declining or
  remaining stable.

Securities, commodity contracts and other financial investments and related activities

• Recent movement in long-term rates, combined with the Fed
  holding rates longer, have delayed the expected value of investment
  recovery until 2025 or later.

Insurance carriers and related activities

• We are recruiting experienced insurance professionals, and there
  is a small pool to draw from, unfortunately. We will keep looking.
• Property insurance and affordability are slowing our growth opportunities.

Real estate

• The increase in treasury yields since last fall has negatively impacted deal-making activity in the income property industry
• We are a real estate broker company and we have about 350
  agents. They are independent agents not salaried employees. Our business
  slows during election years, and high interest rates have hurt
  first-time buyers.
• Cost of capital is weighing on our customers and decreasing volume.

Rental and leasing services

• We are a construction machinery and material handling
  dealership. Our business in the first quarter of 2024 was down 2
  percent, and the industry was down 12.3 percent. Our manufacturing
  clients seem almost on the verge of panic, and there is stuff in
  inventory. We need a guest-worker program to meet our skilled-labor
  needs long term.

Professional, scientific, and technical services

• Persistent inflation and the Fed potentially delaying rate cuts are causing uncertainty for the second half of 2024.
• We are still worried about the election causing uncertainty in
  our clients and prompting a slowdown later this year. Some clients are
  still worried about inflation and are stalling projects because of the
  volatility in the supply market. Overall, it is tough to make any
  forecast right now. Our backlog is strong for the next couple of months,
  but not as far in the future as we would like.
• The market was slower in the first quarter, but it is now in recovery.
• We are increasingly seeing small professional firms shrinking or
  simply closing up shop. The labor shortage is a major reason for giving
  up the fight. There’s plenty of demand for professional services, but
  there is not enough trained staff. Retaining staff is a major headache.
  Owners nearing retirement are giving it up sooner rather than later.
• Burdensome federal regulations are increasing the cost to do
  business, such as the so-called “Corporate Transparency Act” and minimum
  wage increases that just continue to drive inflation.
• General outlook has improved primarily due to our increased
  investment in marketing and an increase in general business activity.
• We see a slight uptick in transactional matters.
• Trying to factor in how remote-work scheduling impacts the need for space and resources is challenging.
• Competitive labor market remains; itÂ’s harder to recruit great talent; health insurance is increasing.
• We have not been this slow since the Great Recession. This
  includes Covid. We cannot understate how terrible the prospective real
  estate market is. People are not filing zoning cases, meaning in two
  years there will not be construction. Volumes have gone down in the
  automotive industry. It seems they are beginning to turn around, so
  we’re hoping.
• This real estate market is hard to figure out. With the 10-year
  rate still moving in the wrong direction, and the likelihood of a rate
  cut not coming this year due to inflation and the strength of the
  economy, we just can’t see the market improving until next year.
• The Fed is now unlikely to cut interest rates; concerns over recession continue.

Management of companies and enterprises

• Overregulation takes away a lot of time and money.

Administrative and support services

• Continued high interest rates, inflation and general economic
  malaise has caused employers to be very reluctant to hire professional
  level talent. They may replace talent if they have attrition, but in
  general, they are very slow to make any new hire decisions.
• There has been a marked decline in requests for quotes for the month. This decline does not fit in our normal seasonal changes.
• The intensity of international conflict and increasing long-term rates certainly raise concerns.
• Geopolitical tensions are creating an uncertain environment.
  Also, upcoming elections and how this may affect the FedÂ’s monetary
  policy is a concern.
• High interest rates have drastically hindered our ability to grow our
  business, and it looks like a rate cut is not likely happening in 2024.

Texas Retail Outlook Survey

Accommodation

• Between increasing inflation, high interest rates and
  instability in the Middle East, we are growing more concerned that the
  upcoming summer travel season will be depressed compared to prior years.
• March 2024 is viewed as a contradiction in that we had several
  areas perform at or close to expectations and others that were far
  below. That seems to be the same in April. Difficult to understand what
  is happening.

Food services and drinking places

• The stalled return to office and the decline of weekday business
  travel to downtown remain drags on revenue. We see a softening in other
  meal periods, and we believe it is due to the increase in menu prices.
  Hiring experienced staff with knowledge remains very difficult. Where
  did seasoned workers go? Cost of goods sold continues to increase.
• We are still hanging on by a thread after closing one business last month.
• The energy sector continues to be strong, which positively
  affects my business. Midland continues to attract a younger population.

Motor vehicle and parts dealers

• The margin on new vehicles sold per unit declined 50 percent
  year over year in March 2024, which was a direct benefit to the
  consumer.
• We are continuing to see labor shortages in the workforce and a
  lack of effort to pursue the positions available from those applicants
  responding to open positions.

Electronics and appliance stores

• Building activity is down still and looks to be getting worse.

Gold price pushes down to $2,300 threshold after US employment costs rise

387216   April 30, 2024 22:33   FXStreet   Market News  

• Gold price falls on improving risk sentiment and an higher-than-expected rise in US employment costs. 
• Positive gains in Asia, strong US earnings and robust European GDP data have all helped boost sentiment. 
• Gold price may be unfolding a Measured Move price pattern lower on the charts.  

The Gold price (XAU/USD) weakens to just above the $2,300 level during the US session on Tuesday, on the back of a positive market mood denting safe-haven demand for Gold and data from the US showing a rise in employment costs that could have negative implications for inflation and interest rates going forward.  

Markets in Asia-Pacific closed on the whole in positive territory, with the Nikkie posting a 1.24% gain, Australia’s ASX200 up 0.35% and the Hang Seng rising 0.1% at the close. Caixin Chinese Manufacturing PMI hit a 14-month high in April whilst in Europe, French and Spanish GDP growth pre-empted a higher-than-expected rise in the Eurozone Q1 GDP, data showed on Tuesday. 

The US Dollar (USD) – which is negatively correlated to Gold price – also rose after the release of the US Employment Cost Index showed a 1.2% rise in Q1, data from the US Bureau of Labor Statistics (BLS) showed on Tuesday. The data beat expectations of a 1.0% increase and the 0.9% of the previous quarter.  

It is another indication of persistent inflationary pressures in the US economy. Higher employment costs are a sign of rising wages and often result in higher inflation. This in turn could persuade the Federal Reserve (Fed) to further delay the time when it decides to reduce interest rates, which is likely to appreciate the USD since higher interest rates for longer lead to greater capital inflows.

Gold price rally driven by Central Banks and OTC buying – World Gold Council

The Gold price rally in Q1 was driven by a combination of strong central bank and OTC buying, according to a recent report by the World Gold Council (WGC). 

Total demand during the period was estimated at 1,238.3 tonnes compared to 1,269.7t in the previous quarter. 

Over-the-Counter, or OTC buying – which is not conducted via exchanges and so can only be estimated – rose by 136.4t compared to 126.9t in Q4. 

Heavy buying by central banks was a contributing factor in the rally in Gold price, with 289.7t of Gold bought by this market compared to 219.6t in the previous quarter. 

“Q1 saw no let-up in the pace of central bank gold buying: 290t (net) was added to official holdings,” said the report. 

Further details from the WGC report are as follows: 

• Gold mine production increased 4.0% YoY to 893t – a record first quarter for the WGC data series.
• Gold recycling climbed 12% YoY to 351t, the highest quarter since Q3 of 2020.
• Eastern investors exhibited different behavior to Western investors, whilst Western gold buying experienced healthy levels of profit-taking. “This contrasted with strong buying into the price surge in Eastern markets,” said the WGC report. 
• Global Gold ETF holdings fell by 114t, with Europe and North America experiencing quarterly outflows. 
• Demand from the jewelry sector remained healthy, given the price rally. Global jewelry consumption fell just 2.0%.
• Gold demand from the technology sector rose 10.0% YoY as the AI boom boosted buying from the tech sector.
   

Technical Analysis: Gold price possibly unfolding Measured Move

Gold price (XAU/USD) is potentially unfolding the final down wave of a Measured Move price pattern, most clearly visible on the 4-hour chart, which technical analysts use to analyze the short-term trend. 

XAU/USD 4-hour Chart

 

Measured Move patterns are composed of three waves that trace out a zig-zag pattern. The waves are often labeled A, B and C. The end of the final C wave can be estimated based on the length of wave A. It is usually either equal in length to A or a Fibonacci 0.681 ratio of A. 

A break below $2,290, however, would confirm the pattern is a Measured Move and lead to more downside as wave C unfolds, with targets at $2,267 (the 0.681 target) and $2,245 (A=C). 

The Moving Average Convergence Divergence (MACD) momentum indicator has started printing bearish red histogram bars and has crossed below its signal line lending the chart a negative tone.

Until the pattern is confirmed, however, there is still a chance Gold price could rally. A break above the cluster of Moving Averages and the peak of wave B at $2,350 would potentially usher in a new more bullish environment. This could then see a retest of the $2,400 highs.

Additionally, the trend for Gold price is up both in the medium and long-term, overall supporting the outlook for bulls.

Pound Sterling falls sharply as US Dollar recovers ahead of FedÂ’s policy decision

387214   April 30, 2024 22:12   FXStreet   Market News  

• The Pound Sterling falls to 1.2530 as investors turn cautious ahead of the FedÂ’s policy announcement.
• Investors will also focus on US Manufacturing PMI and labor market data in addition to the Fed’s policy.
• Market expectations for UK interest rates will guide the Pound Sterling.

The Pound Sterling (GBP) edges down from a two-week high of 1.2570 but holds above the psychological support of 1.2500 against the US Dollar (USD) in Tuesday’s early American session. The GBP/USD pair comes under pressure as investors await the US Federal Reserve’s (Fed) monetary policy announcement on Wednesday for fresh guidance.

A data-packed week in the United States will keep the US Dollar on tenterhooks. On the other side of the Atlantic, the United Kingdom’s economic calendar is light. Therefore, market speculation for the Bank of EnglandÂ’s (BoE) interest rate policy on May 9 will guide the Pound Sterling. The BoE is expected to maintain the status quo, but guidance on interest rates is expected to be slightly on the dovish side.

BoE Governor Andrew Bailey is confident about a sharp decline in the headline inflation of April and sees market expectations for two or three rate cuts this year as reasonable. Also, BoE Deputy Governor Dave Ramsden has predicted that risks of inflation remaining persistent have receded. The BoE could shed more light on the time frame from when it could start reducing interest rates. Market participants remain divided between June or August meetings from when the BoE could pivot to interest rate cuts.

Daily digest market movers: Pound Sterling falls as US Dollar rebounds on higher Q1 Employment Cost Index

• The Pound Sterling struggles to extend upside above the immediate resistance of 1.2560 against the US Dollar. The US Dollar rebounds sharply as the Q1 Employment Cost index grew at a stronger pace of 1.2% from the consensus of 1.0% and the prior reading of 0.9%. The higher Employment Cost Index suggests rising wage growth, which feeds consumer price inflation.
• Going forward, the major event for investors will be the Federal ReserveÂ’s interest rate decision, which will be announced on Wednesday.  Investors will keenly focus on the interest rate guidance as policymakers are expected to vote for holding interest rates steady in the range of 5.25%-5.50%.
• Inflation measures for March have indicated that price pressures remain persistently higher due to robust consumer spending and tight labor market conditions. This would force the Fed to support the argument of keeping interest rates higher for a longer period. Fed policymakers are expected to continue with their current monetary policy framework until they get sufficient evidence that inflation will sustainably return to the desired rate of 2% target.
• The US Dollar Index (DXY) rebounds to near 106.00 on expectations that the Fed will maintain a hawkish guidance. Before the Fed policy, investors will watch the ADP Employment Change and the ISM Manufacturing Purchasing Managers Index (PMI) data for April. US private employers are forecasted to have hired 179K job-seekers, slightly lower from the prior reading of 184K.
• The US ISM PMI is expected to remain above the 50.0 threshold that separates expansion from contraction but will drop slightly to 50.1 from 50.3. On the same, the survey by S&P Global for April showed that the factory data fell below the 50.0 threshold. The agency reported a sharp decline in the scale of production and new orders due to inflationary pressures, weak demand and sufficient stock holdings at customers.
• Later this week, the US Dollar will be guided by the Nonfarm Payrolls (NFP) report for April, which will be published on Friday.

Technical Analysis: Pound Sterling holds the 1.2500 support

The Pound Sterling falls from a two-week high of 1.2570 against the Greenback. The GBP/USD pair struggled to extend its upside reaching the breakdown region of the Head and Shoulder chart pattern formed on a daily timeframe. The Cable witnessed a sharp fall after breaking below the crucial support of 1.2535 on April 12, but it has recovered recent losses since then. 

Cable’s near-term outlook has improved as it trades comfortably above the 20-day Exponential Moving Average (EMA), which is around 1.2516. 

The 14-period Relative Strength Index (RSI) shifts into the 40.00-60.00 range, suggesting a consolidation ahead.

US CB Consumer Confidence declines to 97.0 in April

387213   April 30, 2024 22:09   FXStreet   Market News  

• CB Consumer Confidence Index declined sharply in April.
• US Dollar Index clings to daily gains near 106.00.

Consumer sentiment in the US weakened in April, with the Conference Board’s Consumer Confidence Index dropping to 97.0, the lowest reading since July 2022, from 103.1 (revised from 104.7) in March.

“The Present Situation Index—based on consumersÂ’ assessment of current business and labor market conditions—declined to 142.9 in April from a downwardly revised 146.8 in March,” the Conference Board said in its press release.

The Expectations Index dropped to 66.4 from 74.0, while the 12-month inflation expectation remained stable at 5.3%.

Market reaction

The US Dollar Index retreated from session highs after this data and was last seen rising 0.25% on the day at 105.88.

Mexican Peso edges lower after release of GDP data

387211   April 30, 2024 22:09   FXStreet   Market News  

• The Mexican Peso declines after the release of Q1 GDP growth data shows a slower year-over-year rate of growth. 
• Quarterly GDP is higher at 0.2% than the previous quarter, however, providing an antidote to the yearly slowdown.
• Analysts at Rabobank expect the Peso to appreciate as long as volatility remains subdued. 

The Mexican Peso (MXN) weakens roughly 0.1% just after the release of Mexican GDP data shows a fall in the yearly rate of growth although on a quarterly basis the GDP groweth rate increases.

Mexican Peso weakens following GDP data 

The Mexican Peso falls immediately after the release of the preliminary reading for Q1 Mexican GDP growth after it shows a slower 1.6% growth rate YoY compared to the 2.5% recorded in the previous quarter, according to data from INEGI. 

Some of the sting is taken out of the data, however, by the quarterly figure which shows a higher 0.2% rate of GDP growth QoQ, compared with the 0.1% gain in Q4. 

The data suggests an increase in the probability that the Banxico could cut interest rates again, reducing capital inflows to the Peso. 

USD/MXN is trading at 16.97, EUR/MXN at 18.18 and GBP/MXN at 21.28, at the time of publication. 

Mexican Peso to continue strengthening – Rabobank

The Mexican Peso will continue to strengthen as long as market volatility remains low, according to analysts at Rabobank. 

“..as long as volatility is declining, MXN will rally. While suppression of volatility is a tenuous assumption, it is our base case for the next couple of weeks,” says Rabobank. 

Relatively high interest rates in Mexico – the Banxico overnight interest rate is 11.00% – support inflows from the carry trade in which traders borrow in a currency with low interest rates and use the loan to buy a currency with higher interest rates like the Mexican Peso. 

“We expect interest rate differentials to remain favorable,” says Rabobank. 

In the case of Mexican Peso’s most highly traded pair USD/MXN, the rate differential remains Peso-favorable. 

“US-MX 2yr rate differentials have widened 33bp in April and will continue to act supportive for MXN over the course of May.”

The Banxico is likely to keep interest rates unchanged at its May meeting based on recent Banxico commentary. 

“We have changed our Banxico forecast to reflect a pause at the May 9 meeting. This follows Deputy Governor Jonathan Heath’s interview on April 20, when he noted that he is ‘leaning towards a pause in May, and we can see how data evolves by June,’ which he highlighted is ‘likely’ to be a unanimous decision,” says Rabobank. 

The high number of long positions amongst non-commercial speculators in the MXN futures market as well as a seasonal effect, which suggests May is a favorable month for  MXN, are further drivers of upside, according to the bank. 

Rabobank forecasts USD/MXN to fall below 17.00, eventually reaching a target of 16.80. 

Technical Analysis: USD/MXN sideways trend continues

USD/MXN further extends its sideways trend over the short-term, oscillating within a range that has a floor at 16.86 and a ceiling at 17.40. 

USD/MXN 4-hour Chart 

The pair is in a down leg within the sideways trend and could continue falling to the range lows. The Moving Average Convergence/ Divergence (MACD) is printing a red histogram and looks poised to move below the zero line, further adding a bearish tenor to the chart. 

A decisive breakout of the range – either below the floor at 16.86, or the ceiling at 17.40 – would change the directional bias of the pair. 

A break below the floor could see further downside to a target at 16.50, followed by the April 9 low at 16.26.

On the other side, a break above the top would activate an upside target first at 17.67, piercing a long-term trendline and then possibly reaching a further target at around 18.15. 

A decisive break would be one characterized by a longer-than-average green or red daily candlestick that pierces above or below the range high or low, and that closes near its high or low for the period; or three green/red candlesticks in a row that pierce above/below the respective levels.

GBP/JPY floats higher on upbeat market mood after previous day’s steep descent

387210   April 30, 2024 22:05   FXStreet   Market News  

• GBP/JPY rises steadily as market mood brightens, reducing flows to the safe-haven Yen. 
• Positive lending data in the UK shows credit remains ample. 
• BRC Shop Price Index shows disinflation in the UK but not enough to prompt BoE into action, say BBH analysts.
   

GBP/JPY trades over a third of a percentage point higher at just above 197 on Tuesday, drifting up after the steep correction of the previous day which saw the pair fall from a peak of 200 to a low of the day in the 193s. 

The sudden one-day decline was put down to the Japanese authorities intervening in Forex markets to prop up the depreciating Japanese Yen (JPY).

Yet Japan’s top currency diplomat, Masato Kanda, refused to confirm this was the case on Tuesday morning, saying simply that the Ministry of Finance will release figures on currency intervention at the end of May.  

He also repeated his warnings about the risks of an excessive weakening of the Japanese Yen (JPY), adding “Excessive FX moves could impact on daily lives,” and, we “Need to take appropriate actions on FX.”

GBP/JPY floats higher on “mean reversion” and buoyant market sentiment

GBP/JPY’s bounce on tuesday seems more due to a “mean reversion” effect than anything driven by any macro-economic data releases, and the bounce in GBP/JPY echoes similar rebounds in most Yen pairs. 

As a safe-haven currency, JPY tends to weaken when market sentiment is upbeat and on Tuesday the market mood was overall positive, buoyed by the recent run of tech earnings, positive GDP releases in Europe and overall easing geopolitical concerns. 

The continued interest rate differential between the UK and Japan creates an overall bullish backdrop for the GBP/JPY. 

The BoE is in no rush to cut interest rates with services inflation still rampant in the UK and in Japan the most recent batch of Tokyo CPI showed disinflation in the capital, which makes it even less likely the BoJ will raise super-low interest rates in Japan. As long as investors see more of a return parking in Pounds than Yen, the pair is destined to rise. 

Minor data causes minor effects 

The release of Japanese housing data during the Asian session on Tuesday appeared to have little noticeable effect on JPY. Housing Starts fell a bigger-than-expected minus 12.8% in March than the negative 7.6% expected but Construction Orders rose 31.4% from minus 11.0% in the previous month. Annualized Housing Starts moderated slightly to 0.76 million. 

UK lending data out a few hours later also had little immediate impact on GBP but GBP/JPY did float higher in the hours that followed. 

It is possible the UK data reflected an environment of fairly ample lending and loose credit conditions which might make it less likely that the Bank of England (BoE) will rush to cut interest rates. Keeping interest rates higher for longer is favorable for the Pound as it attracts capital inflows.   

UK Net Lending to Individuals in March came out higher than expected at 1.8 billion (GBP) when 1.7B (GBP) had been expected. The February figure was also revised up from 2.8B (GBP) to 3.0B (GBP), according to data from the BoE. 

UK Consumer Credit data out at the same time showed British shoppers borrowing more – a slightly higher 1.577 billion (GBP) in March compared to February’s 1.429B (GBP). 

UK Mortgage Approvals also rose slightly higher than expected to 61.325K when 61K had been forecast, and Money Supply (M4) rose by 0.7% in March, which was above the 0.4% forecast and the 0.6% of the previous month. 

UK inflation data unlikely to persuade BoE

At the same time a fresh batch of UK inflation data, in the form of the Consortium of British Industry’s (CBI) Shop Price Index, showed disinflationary forces at work in April. This might have been expected to weaken GBP, given lower inflation is more likely to bring forward the time when the BoE could decide to cut interest rates. 

“Shop Price annual inflation eased to 0.8% in April, down from 1.3% in March. This is below the three-month average rate of 1.4%…its lowest since December 2021,” said the BRC report. 

Additionally, non-food items entered deflationary territory, falling 0.6% in April compared to a 0.2% rise in March and a higher 0.2% three-month average. 

Food inflation in the UK decelerated to 3.4% in April, down from 3.7% in March. This was below the three-month average rate of 3.9%. It was the twelfth consecutive deceleration in the food category, according to the report. 

Although the BRC data painted a deflationary picture, analysts were quick to dismiss any impact on BoE decision-making from the report. 

“While the data is welcome, shop price disinflation is unlikely to convince the BoE to move early with policy rate cuts, as it is more concerned with high and sticky services inflation. The first cut is still seen in August,” remarked analysts at Brown Brothers Harriman. 

US April consumer confidence 97.0 vs 104.0 expected

387209   April 30, 2024 22:02   Forexlive Latest News   Market News  

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USD/CAD rises above 1.3700 as strong US Q1 Employment Cost Index, weak Canadian GDP

387208   April 30, 2024 21:56   FXStreet   Market News  

• USD/CAD moves higher above 1.0700 on multiple tailwinds.
• The US Dollar rebounds after upbeat Q1 Employment Cost Index data.
• Weaker-than-expected Canadian GDP weighs on the Canadian Dollar.

The USD/CAD pair rises above the crucial resistance of 1.3700 in TuesdayÂ’s early American session. The Loonie asset strengthens as the US Dollar extends recovery after the United States Bureau of Labor Statistics (BLS) reported stronger-than-expected Q1 Employment Cost Index data.

The agency reported that the Labor Cost Index rose sharply by 1.2% from the consensus of 1.0% and the prior reading of 0.9%. The US Dollar Index (DXY) rebounds to near 106.00. The Highest Labor Cost index is broadly driven by strong wage growth, which eventually leads to an increase in householdsÂ’ spending, suggesting a stubborn inflation outlook.

This is expected to allow the Federal Reserve (Fed) to keep rate cuts off the table and maintain the restrictive interest rate framework for a longer period. For more concrete interest rate outlook, investors will focus on the FedÂ’s monetary policy announcement on Wednesday. The Fed is expected to keep interest rates steady in the range of 5.25%-5.50%. For the interest rate guidance, the Fed reiterates the need to keep interest rates higher for a long time until it gains confidence that inflation will sustainably return to the desired rate of 2%.

Apart from a rebound in the US Dollar, the weak Canadian Dollar has also exerted pressure on the Loonie asset. The monthly Canadian Gross Domestic Product (GDP) grew at a slower pace of 0.2% from the estimates of 0.3% and the prior reading of 0.5%, downwardly revised from 0.6%. This indicates the consequences of higher interest rates by the Bank of Canada (BoC). The BoC may start reducing interest rates sooner due to weak growth and consistently softening price pressures. Traders have priced in the June meeting from when the BoC could pivot to interest rate cuts.