Daily Market Pulse

USD

The US Dollar Index has swung back into the green this morning on the heels of the ECB interest rate decision and ahead of tomorrow’s US Non-Farm Payrolls release. 

Yesterday, the Fed removed a significant statement from its previous communications regarding the necessity for future rate hikes. There was some speculation heading into the decision that the Bank may even look to cut rates later this year. However, Fed Chair Jerome Powell pushed back against such expectations and emphasized that inflation would still take some time to decrease, so cutting rates this year would be inappropriate. 

Meanwhile, the black cloud of the US banking system continues to cast a shadow on the global economy. PacWest Bancorp announced yesterday that it was discussing strategic options with potential partners and investors – including a sale or capital raise. The move came after the Los Angeles-based lender and several other regional US banks saw their stock prices plummet amid concerns about an exacerbating banking crisis. 

EUR

The European Central Bank (ECB) raised its key interest rates by 25 basis points this morning, marking the eighth consecutive rate hike since July 2008 but indicating a slower pace of policy tightening. The ECB continues to battle high inflation despite the Euro Area inflation rate rising to 7% in April. Despite the hike, the hint of a slower pace of tightening put the Euro on the back foot as markets await a press conference from Lagarde, which could provide more drama yet for the already volatile EUR/USD.       

GBP

After gaining 0.78% yesterday, GBP/USD remains primarily unchanged this morning as markets process the Fed and ECB monetary policy positions. Meanwhile, this morning’s composite PMI numbers out of the UK came in better than expected, driven by a year’s most significant growth in the UK services sector. The growth can be attributed to more robust consumer spending, despite pressure on household budgets from inflation. Outside of construction PMI numbers, tomorrow will be a light one on the UK economic calendar.

JPY

It has been quite the journey for the Yen over the last two weeks. After USD/JPY surged 1.62% last week, it has given roughly half of those gains back this week as buyers and sellers continue to battle for control. In the short term, volatile trading in the Dollar post-ECB decision could boost flows into the safe-haven Yen heading toward the weekend – especially if US banking fears spark another risk-off shift.  

CAD

The Loonie has managed to curtail some of its losses from earlier this week as traders digest US jobless claims and Canadian and American trade balance numbers while keeping an eye on the ECB press conference. Despite the Greenback strength post-ECB decision, USD/CAD remains in the red ahead of Canadian Ivey PMI data later this morning. Both US and Canadian employment numbers are slated for tomorrow. Meanwhile, oil prices have finally found a floor after WTI collapsed below $64/barrel earlier. However, despite the rebound of the lows, it remains down over 10% for the week and could continue to weigh on the Loonie to close out the week.  

MXN

Like many of its LATAM counterparts, the Mexican Peso is back on track for the week amidst general Dollar weakness and potential monetary policy divergence between the Federal Reserve and Banxico. In addition, this morning’s solid consumer confidence and job numbers out of Mexico have helped the Peso continue its torrid run and retest levels not seen since 2018. With the Fed likely on the sidelines for the coming months, MXN traders eagerly await the May 18 interest rate decision from Mexico’s Central Bank. 

BRL

As expected, the Brazilian central bank maintained its key Selic rate at 13.75% yesterday, following its first monetary policy meeting after the government proposed new fiscal rules. The bank indicated it is unlikely to resume hikes and will maintain its current policy to keep inflation under wraps. However, it was noted that they would not hesitate to resume rate hikes if its current policy can’t tame inflation. 

Despite easing inflation in March, the bank’s inflation expectations for 2023 and 2024 remain at 5.8% and 3.6%. 

The Brazilian Real has since catapulted off the week’s lows and is currently sitting modestly stronger against the Dollar heading into the US session.  

CNY

For the second consecutive month, China’s General Manufacturing PMI came in below expectations. Moreover, the latest report showed factory activity contracted in April, the first decline since January, likely partly due to the property downturn in China and fears of a global economic slowdown. Despite this, the Yuan continues to rebound from Monday’s 7-week low. 

Services PMI is next on the Chinese economic calendar, which is set for release later this evening as Asian markets reopen.