Dollar steady while Treasury yields rise, risk appetite cautiously improves

The Chief of the Federal Reserve Jerome Powell has managed to calm market concerns around rate hikes, reiterating that the Fed is prepared to act accordingly, depending on whether the economy performs as expected. Nonetheless, the worrying rhetoric linked to tightening monetary policy in these times we live in, continues to fan the flames of negative sentiment.

Treasury yields rose with the 10-year yielding 2.91%, the 5-year 2.86% and the 2-year 2.60%, underpinning the dollar and keeping the dollar index steady just beneath the 105.00 handle, near 20-year highs, despite a modest bounce in US stock futures.

Ending the week, US export prices rose less than expected in April by 0.6% from a month earlier, roughly matching the market expectations of 0.7%.

At 15:00 GMT the preliminary May University of Michigan consumer sentiment will be reported, which is expected at 64.1 versus 65.2 in April, while the 1-year inflation component is expected to tick to 5.5% from 5.4%.

USD/JPY is perhaps the noteworthy mover as it is up 0.6% around the 129.00 per dollar mark after improving 0.8% from the Asian session start. The upside looks intact as easing risk-off impulses have failed to erode some of the greenback’s strength and the BOJ continues to sit on the side lines. Additionally, the Swiss franc has recouped some strength after USDCHF breached the parity mark and touched 1.0048 francs per dollar.

The euro is relatively unchanged today around $1.0370 after regaining some light ground upon nearing the $1.0340 support level. A break of the latter may result in deteriorating market psychology and eyes focusing on the parity mark. ECB tightening expectations remain subdued, with rate hike action scheduled for July and ending of QE in June.

The pound is heavy slightly above its $1.2160 support level with no assistance coming from the Bank of England, whose tightening expectations have adopted a softer tone. Moreover, Prime Minister Johnson only seemed to add fuel to the fire consuming the pound, as he wants to cut UK civil servant jobs by approximately 90,000 payrolls, to offset possible tax cuts. Under increasingly harder times in the UK, this seems to be the wrong path for the government to take as households’ strain will only be exacerbated.

Oil sturdy despite strains, commodity currencies stabilize

China’s lockdowns regarding its policy may linger towards the end of May. Risks of a slowdown intensify, and today’s weak April new loan figures came in less than half of the 1,55 trillion expectations at 645 billion, and lower from the 3.13 trillion March numbers, showing that maybe businesses and individuals are hesitating to borrow under the impact of the virus on the economy.

With Russia’s war on Ukraine dragging on, Russian supplies being phased out, continued shortages in the supply of oil and a Chinese demand shock along with a steady OPEC+, the outlook for oil is likely to get worse, while prices bite harder. Nonetheless, WTI oil futures’ resilience under the strains is apparent, now holding at $107.70 after rising to $108.43 per barrel. USDCAD surrendered some ground with the price now at C$1.3005 as the Canadian dollar benefited from higher oil prices.

Among soft commodities under strain, is wheat, which means the squeeze on consumers may drag out as global stockpiles gradually shrink further, while one of the largest producers of wheat, Ukraine, is at war with Russia. Ukraine is expected to see a one-third of its production drop compared to the previous year, when the country was not engrossed in a war.

FOMC Member Mester is due to speak at 16:00 GMT regarding monetary policy during and after the pandemic at an online event hosted by the European Central Bank.