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The U.S. job market report will be the main event today

USD

The dollar fell 0.48% from a two-week high on Thursday as the global market risk appetite improved. In general, the macro picture, with a widening global vaccine, as well as the major central banks beginning to slow monetary stimulus, helped the major currencies to hold up well against any advance in the greenback. Looking ahead, the job market report, referencing April, will be the main event today. It is expected that the jobs recovery continues to gather pace, cementing expectations of a strong economic recovery and increasing investor appetite for stocks, higher-yielding currencies, and commodities.

EUR

The common currency had a significant performance (+0.49%) against the dollar, with the EUR finding a strong demand over Thursday’s trading session. There was no clear catalyst for this demand, though Eurozone retail sales rose in March, beating expectations despite the continuation of Covid-19 restrictions across the continent. Yesterday’s session did move the EUR back above its 100-day moving average. Looking ahead, economic data from Germany will occupy the center stage, while investors also wait for the jobs report from the U.S.

GBP

Yesterday, the challenging “Super Thursday” votes for Prime Minister Boris Johnson overshadowed the bullish Bank of England announcement, hindering the Pound from printing gains. As a result, the Pound had a poor performance against the U.S. dollar, closing 0.13% down. In general, the Bank of England upwardly revised their growth expectations for the UK economy; now expecting GDP growth of 7.25% this year, and a recovery to pre-Covid output levels this year. Furthermore, the BoE announced that the pace of bond purchase will be slowed. Looking ahead, market participants will continue to be cautious while the counting of ballot papers takes place over the coming days.

JPY

The Japanese yen traded 0.12% higher against the U.S. dollar on Thursday, remaining within familiar ranges. It is worth noting that the volume of exchange-traded funds (ETF) assets held by the Bank of Japan (BoJ) currently is equivalent to 58.9% of the domestic ETF market, which is the smallest share in several years. This contradicts what BoJ Governor Kuroda said in March that the central bank would not stop buying ETFs as the ETF purchase had a positive impact on the economy and prices. Therefore, this suggests that the BoJ is revising its policy instruments as there are growing policymakers’ concerns about the rising cost of extended easing. Looking ahead, the Consumer Price figures for April highlights the economic docket and provides fresh ammunition for the BoJ.

CAD

The Loonie found a reasonable demand across the board on Thursday, which led the currency to appreciate by 0.8% against the greenback and register its strongest level since September 2017. The sharp rise came about after commodity prices showed another strong day, with aluminum approaching levels not seen since 2018, while copper and gold also registered additional gains. Looking ahead, investors and traders will wait for Canada’s employment report today, which is set to show that the economy shed 175,000 jobs in April due to Covid-19 related restrictions on business. Therefore, the report might trigger some correction. 

MXN

A decline in the greenback favored the emerging market currencies, including the Mexican Peso, which rose 0.8% on Thursday. Domestically, investors continued to wait for inflation readings which will be published later today. The fresh data will be a key factor for the next Mexico Central Bank’s (Banxico) monetary policy meeting next week as the inflationary pressure puts the Bank in a tough spot. In general, inflationary risks could lead Banxico to initiate monetary normalization ahead of its schedule, hence providing positive tailwinds to the MXN.

CNY

The Chinese yuan edged 0.12% higher against its rival U.S. dollar on Thursday despite seeing China becoming increasingly isolated on the international stage. Firstly, the European Union had signaled it would not ratify an investment deal with China as long as its officials are sanctioned. Secondly, the economic dialogue with Australia was suspended. Thirdly, New Zealand’s parliament passed a motion declaring “severe human rights abuses” were taking place against Muslim Uyghurs in Xinjiang, although it stopped short of echoing U.S. accusations of “genocide”. Ultimately, G-7 diplomats singled out China over a variety of subjects, including alleged human-rights abuses, actions on Taiwan, and incursions in cyberspace. Looking ahead, the scaled geopolitics tensions could sour the global sentiment and encourage investors to move towards safe-haven assets. 

BRL

Once more, the Brazilian Real led gains across Latin American currencies yesterday, with market players yet reflecting the recent interest rate hike by the Central Bank. In the wake of further increases shortly (perhaps +0.75bps in June), which would help to rebuild the interest rate differential relative to the international market faster, the BRL jumped as much as 1.43% to touch a level not seen since January. This strong movement also shakes exporters up who are exposed to the USD (or those who are waiting for large gains in their hedging positions), as it triggers companies to bring back revenues that are still offshore. This movement might gain traction in the upcoming weeks and provide support to the BRL. Looking ahead, March’s Retail Sales figures, as well as updated inflation data for April are expected to be a market mover later today.

Quick Insights

USD: The macro big picture with a widening global vaccine helped the major currencies to hold up well

USD: The macro big picture with a widening global vaccine helped the major currencies to hold up well

EUR: The EUR finds a strong demand over Thursday’s trading session

EUR: The EUR finds a strong demand over Thursday’s trading session

GBP: The challenging “Super Thursday” votes for Prime Minister Boris Johnson overshadowed the bullish BoE

GBP: The challenging “Super Thursday” votes for Prime Minister Boris Johnson overshadowed the bullish BoE

JPY: BoJ is revising its policy instruments as there are growing policymakers’ concerns about the rising cost of extended easing

JPY: BoJ is revising its policy instruments as there are growing policymakers’ concerns about the rising cost of extended easing

CAD: Commodity prices shows another strong day, with aluminum approaching levels not seen since 2018

CAD: Commodity prices shows another strong day, with aluminum approaching levels not seen since 2018

MXN: Inflationary pressure puts the Bank in a tough spot

MXN: Inflationary pressure puts the Bank in a tough spot

CNY: China becoming increasingly isolated on the international stage

CNY: China becoming increasingly isolated on the international stage

BRL: Once more, the Brazilian Real leads gains across Latin America

BRL: Once more, the Brazilian Real leads gains across Latin America

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