US Open Note – Falling dollar breathes life into the euro; Wall Street in the red



3Dollar loses steam but is still the king

The king dollar cooled off against a basket of six major currencies in the last trading day of April, having previously rapidly advanced to a two-decade high of 103.93 on the back of persisting calls for higher interest rates in the US and Ukraine-related economic risks in Europe. Still, a fourth consecutive weekly gain is more than secured for the greenback ahead of a busy week of central bank meetings and data releases.

Of course, the surprising 1.4% GDP contraction in Q1, which was the first decline in the world’s largest economy since the lockdown recession in the first half of 2020, caused some anxiety among investors amid spiraling inflation. Nonetheless, investors did not aggressively sell the dollar as consumption and business spending remained in the expansion area, keeping the case for a 50bps rate hike from the Fed likely next week.

US consumption & income data beat expectations

Monthly personal consumption and income figures for March provided more evidence on households on Friday, displaying a faster-than-expected monthly growth of 1.1% and 0.5% respectively. Moreover, the Fed's favorite core PCE inflation measure clocked in slightly lower at 5.2% y/y compared to 5.3% expected, but the dollar did not get upset, crawling moderately back above the 130.00 level in the aftermath after touching an intra-day low of 129.70 earlier in the day. A quarterly increase of 1.4% in employment wages from 1.0% at the end of 2021 also added some support under the greenback.

European currencies get a respite

The bearish reversal in the dollar breathed life back into the European currencies, which were badly suffering, mainly in the face of geopolitical tensions during the week. Although Germany dropped its opposition to embargo Russian oil, likely in response to Moscow’s supply cuts to Bulgaria and Poland, the euro maintained its positive momentum, climbing as high as $1.0592 before easing a bit. As expected, the Eurozone’s annual flash CPI inflation inched to a record high of 7.5% y/y in April and GDP growth edged up to 5.0% y/y in Q1. Hence, there was not much reaction.

The pound rose at a faster pace to $1.2583, recovering Thursday’s losses ahead of the Bank of England's policy gathering next week. Yet, the aussie was the one which tracked the biggest share of gains at the expense of a weaker dollar among major currencies, jumping by almost 1.0%. Perhaps, China’s pledge to boost stimulus measures as the pandemic is soaring in the region also amplified the bounce in the antipodeans.

Canadian monthly GDP hits one-year high

In other commodity-dependent currencies, the Canadian dollar responded positively to February’s upbeat monthly GDP report, which displayed the largest expansion in a year, while rising oil prices assisted the bullish move as well. Dollar/loonie is approaching the 1.2700 round level on the downside. Loonie/yen is testing yesterday’s high of 102.44, having almost erased its latest downfall.

Wall Street in the red; gold positive

Meanwhile in stock markets, the Nasdaq 100 and the S&P 500 opened down by around 0.80%, while Dow Jones faced a softer deceleration. That follows a bleak earnings report from Amazon yesterday and Apple's warnings over supply constraints. ExxonMobil’s stock slid on an earnings miss too, but the company remained profitable despite a $3.4 billion hit from Russian charge.

On the other hand, European indices are following their Asian counterparts higher, with the STOXX 600 running up by around 1.0% thanks to an almost 3.0% jump in energy shares.

Gold is another bullish asset today, but a negative weekly close seems inevitable. The precious safe-haven metal peaked at $1,919/ounce today, shrugging off the rebound in US Treasury yields.

 


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