The USD remains under pressure this morning after the Fed kept monetary policy unchanged as expected. The central bank pledged to keep rates at 0.0 - 0.25% until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. The USD had moved lower ahead of the Fed announcement and it continues to trade lower against the EUR, GBP, JPY, and CAD. As the dollar moves lower, the equity markets move higher. The DOW closed over 530 points higher yesterday as traders reacted to the news that Gilead Sciences had gotten positive results on their coronavirus treatment experiments. DOW futures are higher this morning as well after earnings reports from Facebook and Microsoft were better than expected. The US equity markets are expected to open around 100 points higher later this morning. US jobless claims report another 3.8 million workers have filed for unemployment, bringing the total to over 30 million people in the last six weeks. US Treasury yields traded lower overnight, after the Fed announcement and currently, the 10-year note is trading at 0.6077% and the 30-year bond is trading at 1.2334%. Expect pressure to remain on the USD during trading today, while the DOW continues to move higher.
EUR/USD is trading higher this morning, as USD negativity continues despite terrible economic data. Eurozone GDP fell by 3.8% in the first quarter of 2020, which was worse than expected, yet traders were buying the single currency ahead of the European Central Bank (ECB) rate decision. The European Central Bank kept its monetary policy unchanged, leaving both its official interest rates and its various asset purchase programs untouched. The central bank did ease conditions on its long-term refinancing operations for banks. It also announced that a new series of finding operations will take place beginning in May and ending in September 2021. Member banks will be able to make use of the recent relaxation in the rules regarding eligible collateral and this will be known as PELTROs. The ECB also stated that they are fully prepared to increase the size of the PEPP and to adjust “as necessary” for as long as it’s needed. At present, the PEPP is at EUR 750 billion. The Eurozone economy is contrasting by a larger amount than the US economy and some are saying this is since the European lockdown began earlier than the US lockdown. The EUR/USD has had a muted reaction to the ECB announcement, initially jumping a bit higher, but then falling back towards pre-announcement levels. Spain and France saw GDP fall by 5.2% and 5.8% respectfully, while German unemployment rose to over 370,000 unemployed, which was around five times more than expected.
GBP/USD is also trading higher this morning, as the UK will remain in lockdown in reaction to the increase in virus cases on the continent. Germany saw an increase in cases and there is concern that could affect those in the UK. These concerns have weighed a bit on the pound, which has not been able to take full advantage of the USD weakness. The concern over a second wave of infection will most likely have PM Johnson extend the current lockdown of the country past May 7th. Criticism over the response of the government to the virus in the UK continues and traders will be looking to see what comments are made from the Prime Minister regarding the government’s next moves. Having contracted and recovered from the virus, any moves by PM Johnson are expected to err on the side of caution.
USD/JPY continues to trade lower as safe-haven trades offset any economic news coming from Japan. Japan’s industrial production fell 3.7% in March, down from February’s release of 0.3%. The release was better than the expected fall of 5.2%., but it is still the largest fall since October 2019. Retail sales fell 4.6%, down from February’s 1.6%, but better than expected, which was also the biggest decline since last October. Housing starts also fell 7.6%, which was better than the 16.0% expected. The Japanese parliament is expected to approve a supplementary budget to aid the economy as it reacts to the impact of the coronavirus pandemic. Prime Minister Ade is expected to announce an extension to the nationwide state of emergency that is due to expire next Wednesday.
USD/CAD is lower this morning as traders react to higher oil prices overnight. Reports show there is more of a rise in oil demand than was originally expected. West Texas Intermediate crude futures increased $2.05 to $17.11 per barrel, while Brent crude was up $1.71 to $24.25 per barrel. Inventories of US crude grew by only 9 million barrels last week as opposed to the expected 10.6 million. USD/CAD has broken through technical support levels and the move is expected to continue. Canada will report GDP numbers this morning, but they will be for February, and will not have much impact since those numbers were before the full effect of the virus. Yesterday, a Reuters poll of 25 economists predicted the Canadian economy will contract by 5.7% in 2020, before returning to expansion in 2021 by 4.5%. This news was largely ignored by traders as oil prices seem to rule the day.
China’s PMI manufacturing dropped to 50.8 in April, down from the 52.0 number the month before, and slightly below the expected 51.0. New exports fell to 33.5, while non-manufacturing PMI improved to a three month high of 53.2, up from 52.3, and better than the expected 52.8. As the coronavirus pandemic continues world-wide, China is hopeful that there will be a strong comeback in manufacturing. However, these releases show the economy is getting closer to contraction territory. Unfortunately, the global recession, which is expected to continue due to the virus, will put downward pressure on Chinese manufacturing in the coming months.