USD starts Q2 higher after strong US ISM numbers

Good morning

Welcome to April, welcome to Q2, welcome to some super lovely warm dry weather.  If only!

Got to keep it brief today as I’m out and about pretty early this morning.  The main news from the currency world is the firmer US dollar which did next to nothing until the US manufacturing ISM numbers came out yesterday, stronger than expected and crucially back above the 50 level for the first time since September 2022.  US rate cut expectations are being pared back as a result, either in terms of timing or simply the number of cuts we are likely to see in 2024.

USD was higher across the board, GBPUSD traded down to 1.2540, EURUSD to 107.30 and USDJPY is now up to 151.80, prompting more jaw-boning from Japanese officials about how closely they are watching currency levels but has done little to support Yen for now.  GBPEUR is back to 1.1700 having seen a range last week of 1.1640- 1.1720. 

China once again fixed USDCNY below 7.1000 despite the pair trading to 7.2350 in the market, with USDCNH around 7.2640, the stronger USD offering no help to PBoC who would like to prevent further CNY depreciation, amid reports Chinese State banks were selling USDCNY in the market. 

Gold made new highs yesterday, reaching $2,265/oz, some US$2,000 higher than the level Gordon Brown sold half of the UKs gold reserves back around the turn of the century.  Part of those funds raised went into UKs Euro reserves which has appreciated around 30% or so since then.  Still, with gold up nearly 1000% since then it makes the trade, which never looked good to start with, look really awful.

We’re back to normal times for US data and option expiries after the UK clock change at the weekend.  It looks like being a busy week with german inflation today and  US services ISM tomorrow, but the focus could well be on the US jobs data which starts today with the JOLTS, ADP tomorrow, challenger job cuts Thursday and then the main event Friday in the form of the nonfarm payrolls.

Have a great day whether you’re back in the office or one of the lucky ones taking some extended holidays

13.00 German HICP

15.00 US durable goods, factory orders, JOLTS job openings

17.00 Feds Williams, Mester speak

18.30 Feds Daly speaks

Comments from Feds Waller supports US dollar

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place recently. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 31st when we change our clocks in the UK.   

Currency markets feel very much like they are in holiday mode already with majors confined to pretty tight ranges.  The US dollar is a touch stronger, GBPUSD is 1.2610 and EURUSD 1.0790, its lowest level for over a month, GBPEUR therefore a bit higher at 1.1685.  USDJPY is 151.35 having failed so far to break above 152.00.

The stronger USD was partly down to comments from Feds Waller who made it clear he was in no rush to cut rates and suggests holding rates at current levels for longer than previously thought could be a prudent course of action.  This follows similar comments recently from Bostic who had said he sees just one cut this year.  Still,  the market continues to look at June as the most likely time for rate cuts from Fed, as well as BoE and ECB.  Of the three, it is now the Fed who are sounding the least likely to cut. 

The latest UK Q4 GDP data came out at an unrevised -0.3% as widely expected, and had little in the way of market impact.  As we in the UK attempt to wind down heading into the long Easter weekend, we do still have some reasonable data to come from the US.  GDP today is unlikely to be revised, the PMIs and sentiment data today are always of interest but the key is certainly the PCE tomorrow, an important inflation indicator for the Fed and certainly has market moving potential.  Feds Powell speaks tomorrow afternoon, he’ll probably be less hawkish than the likes of Waller and Bostic but his comments will be closely watched coming so soon after the PCE release.

Another central bank this time RBNZ, has suggested the time for rate cuts was approaching.  RBNZ Gov Orr said in a radio interview that more normalised rates were on the horizon.  NZD dropped, GBPNZD traded above 2.1100 for the first time since Sept 2023, dragging GBPAUD a bit higher to trade just above 1.9400, weaker Aussie inflation and retail sales numbers overnight also helped push AUD lower. 

China fixed USDCNY at 7.0948, once again considerably lower than actual levels trading in the market.  USDCNY is now in the high 7.22s, while the offshore USDCNH is touching on 7.2600.

Gold has had another attempt at the $2,200 level as it did earlier in the week.  So far that area has held but there does seem to be upside pressure and with the metal currently at $2,197 the risk of a break higher remains elevated.

In other news I see that Thames Water is making headlines again, as shareholders are refusing to add additional funds unless bills rise sharply.  There is talk that the firm faces collapse.  As you know I am no fan of water companies who have been happy to pay large dividends while neglecting important infrastructure investment.  To highlight the state of our water, competitors is Saturdays Oxford v Cambridge boat race have been advised to not enter the water after high levels of E. coli were found. 

With the UK holidays tomorrow and Monday this will be the last market report for a few days.  We will of course be watching the markets and are available should any need arise.  I’ve added the calendar for Friday and Monday below.

We do have a clock change this weekend so option expiries and US economic data releases will be back to the normal times next week and I won’t need to remember to put the time difference reminder at the top of this report. 

Have a great weekend.  Hoping it stays reasonably dry, the forecast isn’t great but if the last few days are anything to go by it could be sunny with spells of rain, rather than just constant gloom.  It’s still pretty cold mind you although when the sun is out you do get a brief feeling of warmth.  Surely we’re in for some proper sunny weather soon.

-  12.30 US GDP, PCE, initial jobless claims

-  13.45 US Chicago PMI

-  14.00 US Michigan sentiment survey, pending home sales

-  23.30 Japan Tokyo CPI, unemployment

-  23.50 Japan retail trade

Friday

-  12.30 US personal income/spending, core PCE

-  15.15 Feds Daly speaks

-  15.30 Feds Powell speaks

Monday

-  13.30 CAD S&P manufacturing PMI

-  15.00 US manufacturing ISM

-  15.30 BoC business outlook survey

-  00.30 RBA minutes

USDJPY rises to almost 152.00 raising potential for official intervention

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 london time due to the US clock changes that took place recently. 

In addition, FX option expiries will be 14.00 london time, not the usual 15.00 london time.

This will be until Sunday 31st when we change our clocks in the UK.

All quiet in the world of currencies once again, GBPUSD and EURUSD just a few points lower than they were this time yesterday, now 1.2625 and 1.0825 respectively, with GBPEUR pretty much unchanged at 1.1660.  ECBs Kazaks has reiterated his thinking that a rate cut in June would be appropriate and further cuts will be made cautiously to give time to see how the market reacts to lower rates. 

Most interest came overnight in USDJPY which traded within a few pips of 152.00 on some dovish comments from BoJs Tamura, before some more verbal intervention from FinMin Suzuki sent the pair 40 pips or so lower.  The highs in USDJPY surpassed those made in Oct 2022, at which time we witnessed a few bouts of actual currency intervention, hence perhaps the increased impact of Suzuki’s words this time.  His wording was pretty similar to recent comments, ie ‘watching currency with a sense of urgency, won’t rule out any steps to deal with disorderly market moves’.   

As I type, USDJPY is 151.70, I’m looking at the long weekend and wondering whether Japan would try to take advantage of some reduced liquidity and intervene at some point.  A one week 151.50 USDJPY put costs around 60 yen pips giving a breakeven just below 151.00.  It’s a bit rich for a cheap holiday play, moving the strike down 100 pips to 150.50 reduces the cost to around 30 yen pips.  We know spending money on yen intervention rarely pays off, but then again nor does buying Euromillions tickets but we still get into those from time to time.

We will have the South Africa central bank reporting its latest interest rates this afternoon, consensus is for rates to remain unchanged at 8.25% although some recent higher inflation numbers do make a rate rise an outside possibility, but overall the feeling is rates will stay at 8.25% through to at least Q4 2024.

In other news, I see S&P have downgraded five regional banks over commercial real estate exposures, not a huge surprise but certainly a reminder that CRE issues are not going away.   PBoC have fixed USDCNY at 7.0946, once again far below the actual trading level of USDCNY.  Hopes of a ceasefire in Gaza have diminished as it is reported the Israeli negotiation team have left talks after Hamas made demands they deemed unreasonable, I presume Hamas want Israel to leave Gaza before any hostages are released.  Fridays jackpot is around £44m by the way.

Conspiracy theorists have ‘enjoyed’ a couple of major events recently.  I apologise, I am aware the word ‘enjoyed’ is not really the right terminology for events such as the Russian terror attack or the US bridge collapse where many people have lost their lives.  But both events have seen the rumour-mongers in full flow.  For Russia, it is about who was really behind the attacks, with Russia pointing fingers at Ukraine and the West, while others suggest Russia’s own FSB had some involvement. 

For the Baltimore bridge, it is all about whether it was simply a loss of power, a deliberate crash or whether the boat was hacked into by external sources.  All will be revealed in time perhaps, or maybe we’ll never know the truth.  I would however expect to see bridges such as this now have greater protection built around them, I’ve often thought how delicate some of the supporting structures look.  A huge amount of work and of course a huge amount of disruption now to the Port of Baltimore, one of the top ports in the US in terms if volume and cargo value.

In football, Wales failed in their Euro 2024 qualifying attempt, losing to Poland on penalties after the scores remained goalless after extra time.  England scraped a draw in their friendly with Belgium, an injury time goal prevented a second loss in a row for England.  Spain drew with Brazil, I didn’t see them match but suspect it was something of a thriller, with Brazil scoring a goal late in injury time to secure the draw.  We’re back to Premier League action this weekend.

Its another sunny start to the day here but looks like we’re in for more rain, perhaps not quite as heavy as it was yesterday.  Looking at the BBC forecast, it’s showing rain every day from now until into the second week of April, with temperatures failing to get above 15°c until then at least.  Let’s hope they’ve got it wrong. 

Not much to get our teeth into today, early tomorrow morning we will have the latest UK Q4 GDP numbers, expected to see no revision to the previously announced estimates, thereby confirming we were in recession at the tail end of last year.

Have a great day  

-  09.00 ECBs Cipollone speaks

-  10.00 EU consumer confidence

-  10.30 UK BoE minutes

-  13.00 SARB rate announcement

-  13.30 ECBs Elderson speaks

-  22.00 Feds Waller speaks

-  23.50 BoJ summary of opinions

-  00.00 AUS consumer inflation expectations

-  00.30 AUS retail sales

-  07.00 UK GDP