Currency news

Hawkish bar too high for Powell

Thanim Islam
Profile
Head of FX Analysis at Equals Money
-
3
min read
Publish date
02/05/24
    • Powell suggests not enough evidence to consider rate hike at present
    • Volatility on JPY on further intervention speculation


    Yesterday's currency recap

    Mixed numbers stateside over the course of the afternoon, with ADP payrolls coming in higher than expected, but then both the JOLTS job openings and ISM manufacturing came in lower than anticipated. The net effect on USD was minimal going into the evening's Fed meeting. Market sentiment was lower across the board, dragging GBP lower across the board as well.

    The high hawkish bar was not met by Fed Chair Powell last night, after he commented that he feels monetary policy is restrictive enough at present and that “persuasive evidence” will be needed for the Fed to hike interest rates. The lack of a hawkish surprise failed to give a fresh catalyst for market to buy into USD as a result, with focus now likely to fall on Friday’s job numbers.

    There was volatility on JPY pairs overnight on speculation that authorities in Japan intervened in FX markets for the second time this week. Similar to Monday we saw broad USD selling across the board, although limited to key support levels.

    Today's GBP rates

    Currency pair Daily move* Indicative rate**
    GBPAUD -0.35% 1.9231
    GBPCAD -0.16% 1.7184
    GBPCHF -0.02% 1.1483
    GBPDKK -0.18% 8.7205
    GBPEUR -0.18% 1.1692
    GBPJPY -0.12% 196.8950
    GBPNOK -0.33% 13.8343
    GBPNZD -0.25% 2.1164
    GBPSEK -0.48% 13.7035
    GBPUSD -0.01% 1.2488

    *Daily move - against G10 rates at 7:30am, 02.05.24

    ** Indicative rates - interbank rates at 7:30am, 02.05.24

    Key data points

    Currency Event Period Consensus Previous
    EUR HCOB Manufacturing PMI Apr 45.60 45.60
    USD Initial Jobless Claims Apr 27 211,000 207,000

    Upcoming speeches

    • None today.

    What we think

    Both GBPUSD and EURUSD are trading back up to key resistance levels on the back of the Fed meeting, as well as speculation on additional intervention talks in Japan. However, there doesn’t appear to be enough from the Fed meeting to spur on additional USD selling in the markets, and going into tomorrow's job numbers we would expect consolidation on USD pairs today. Worth noting Powell's comments on ‘persuasive evidence’ needed for a rate hike, and thus puts focus on future data points to determine whether markets start pricing in a rate hike by the Fed this year. Friday jobs numbers and CPI numbers on the 15th May will be likely the next key dates for USD.

    On the geopolitical front, reports suggest that the US and Saudi Arabia are close to a new defence pact that could lay out a path to diplomatic ties with Israel, should Tel Aviv bring the war in Gaza to an end.

    Chart of the day

    With markets deeming Fed Powell to be dovish with the pushback against considering a rate hike at present, market pricing for a rate cut by the Fed has switched from looking likely in December to now looking more likely in November. Market focus will now fall on Friday's job numbers and then the CPI numbers on the 15th May.

    02052024 cotd
    Source: Bloomberg Finance L.P.

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    About the author
    Thanim Islam
    Profile
    Head of FX Analysis at Equals Money

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