monetary policy is restrictive, thus contradicting the possibility of a rate hike by the Fed. Overall, with the narrative of rate cuts having been replaced with the rhetoric of maintaining interest rates higher for longer, it appears that market participants have perceived this shift as a \u201crelatively hawkish\u201d indication by Fed policymakers, thus potentially aiding the dollar. On a macroeconomic level, we note the Preliminary University of Michigan consumer sentiment is set to be released later on today and could potentially weigh on the dollar. Specifically, the preliminary consumer confidence figure for May is expected to decrease from 77.2 to 76.3, implying that consumer confidence in the US economy might be decreasing. On the contrary the Atlanta Fed GDPNow preliminary rate for Q2 which was released this Wednesday came in higher than expected at 4.2% versus the expected rate of 3.3%, thus implying that the US economic expansion not only grew but also accelerated, which supported the dollar following it\u2019s release, which may overshadow the expected reduction in consumer confidence in the US economy. Next week, we would highlight the release of the US CPI rates for April, as a gauge of inflationary pressures in the US economy, where a higher-than-expected reading could support the dollar, as it may encourage the Fed to maintain its restrictive monetary policy stance and vice versa.<\/p>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2024\/05\/image-42.png\")
<\/figure>\n\n\n\nGBP \u2013 BoE keep\u2019s rates steady<\/h2>\n\n\n\n
The pound is about to end the week unchanged against the USD,whilst gaining ground against the JPY and losing against the EUR. On a fundamental level, we note that following the loss of a seat in the House of Commons, for the Tories, a new poll released by YouGov shows the Labour Party leading the polls in a general election at 44% compared to the Conservatives at 18%, which could weigh on the pound, as political uncertainty could arise. On a monetary level, a rift appears to be emerging between BoE policymakers, as following the bank\u2019s interest rate decision on Thursday, the number of policymakers who voted for a cut was 2 instead of the anticipated 1. As such, despite the bank maintaining interest rates at their current levels as it was widely expected, the divergence in the number of allocated votes appears to be weighing on the pound. In the bank\u2019s accompanying statement, the BoE stated that \u201cCPI inflation is expected to return to close to the 2% target, but to increase slightly in the second half of this year, to around 2 \u00bd %\u201d. Therefore, it could be inferred that inflation is nearing the bank\u2019s 2% inflation target and that it may be appropriate to begin easing the bank\u2019s restrictive monetary policy stance. Furthermore, this stance appears to be in play following BoE Governor Bailey\u2019s press conference following the bank\u2019s decision in which he stated that a \u201cJune bank rate cut is not ruled out or planned\u201d, implying that the bank may be preparing to cut interest rates earlier than JPY is about to end the week weaker against the USD, the GBP and the EUR, in a sign of wider weakness. The weakening of the JPY may be stemming from market participants, doubting the oral warnings about another Government intervention in support of the JPY. Furthermore, it could be extrapolated from the JPY\u2019s weakness that market participants may not be convinced that the BOJ\u2019s current monetary policy rate is restrictive enough. As such with USD\/JPY aiming for the 160 ceiling upon which the Government intervened last week, we would not be surprised to see another intervention by the Government should the Yen continue to weaken. Moreover, the USD\/JPY\u2019s rise could also be attributed to a strengthening dollar, yet that alone may not account for the Yen\u2019s widespread weakening against other major currencies. On the flip side, according to the WSJ, BOJ Governor Ueda on Wednesday stated that he is open to the idea of early interest-rate increases if inflation rises at a faster pace than the bank\u2019s projections, which may provide support for the Yen. However, market participants may want to see an actual commitment by the BOJ in terms of monetary policy decisions rather than hypothetical scenarios, in order to be convinced. Hence for now, we would not be surprised to see the Yen to continue to weaken, with some Government interventions along the way until the bank\u2019s next monetary policy meeting. On a macroeconomic level, we would like to note Japan\u2019s GDP rate for Q1 which is due out next Thursday. Should the GDP rate come in higher than the previous quarter\u2019s reading, hence implying an expansion in the Japanese economy at a faster pace, it could provide some leeway for the BOJ to accelerate their monetary policy normalization by potentially increasing interest rates at a greater pace than what is expected, thus potentially providing support for the JPY.<\/p>\n\n\n\n The EUR is about to end the week in the greens against the USD, the pound and JPY, in a sign of wider strength. On a fundamental level, we note the meeting between France\u2019s President Macron and China\u2019s President Xi Jinping who earlier on this week broke protocol according to France24, by taking a trip to the Pyrenees trip for a chance for a one-on-one meeting. Overall an improvement of the Sino-EU trading relationships could support the common currency and vice versa. On a monetary level, we note the comments made by ECB member Nagel on Tuesday who according to Reuters stated that the ECB cannot be lenient with structural inflationary forces, implying that the ECB may need to adopt a more restrictive monetary policy stance. Thus, should more policymakers re-iterate the need for a continuation in the bank\u2019s restrictive monetary policy stance to continue further than the market\u2019s expectations of a June rate cut with two or maybe three rate cuts by the end of the year, it could support the EUR. On a macroeconomic level, we note that some positive indication for the Eurozone appear to have emerged in terms on financial releases, earlier on this week. In particular, the Eurozone\u2019s composite PMI figure for April came in better than expected, in addition to France\u2019s services and composite PMI figures for April having also exceeded expectations, appear to have sent a positive image about the Eurozone\u2019s economy. A view also highlighted by the Eurozone\u2019s Sentix consumer sentiment figure for May which despite being a month ahead, shows an improved sentiment by consumers for the Eurozone\u2019s economic outlook. However, the economic powerhouse of Europe which is Germany appears to be contradicting that view. Specifically, Germany\u2019s factory orders rate for March failed to reach expectations of an increase of 0.4% and came in lower at -0.4% implying a further reduction in demand for manufactured goods, which could dampen the aforementioned view. Nonetheless, traders may now be eyeing the Eurozone\u2019s preliminary GDP rates for Q1 next week. Should the preliminary GDP rates come in lower than the prior reading, hence implying a potential slowdown in economic growth it could weigh on the EUR and vice versa.<\/p>\n\n\n\n The Aussie is about to end the week relatively unchanged against the USD. On a fundamental level, we note that the Aussie as a commodity currency seems to be more sensitive to the overall market sentiment. Hence a possible more risk-oriented approach by the market could provide some support for the AUD and vice versa. Also, we note the sensitivity of the Aussie to developments in the Chinese economy, given the close Sino-Australian economic ties. Hence, China\u2019s better-than-expected trade data for April appears to have provided support for the Aussie, as China\u2019s import growth rate, accelerated to 8.4% versus the prior rate of -1.9%, which may imply more exports of Australian raw materials to China. On a fundamental level, we note the geopolitical tensions surrounding China. The US Government seems to be preparing to impose tariffs on China and media report that it may happen as soon as next week. The new tariffs are expected to focus on industries including electric vehicles, batteries and solar cells, with existing levies largely being maintained. Overall the tensions in the US-Sino relationships on a trading level, may turn the market sentiment more cautious thus weighing on riskier assets such as commodity currencies and especially the Aussie. On a monetary level, we highlight the release of RBA\u2019s interest rate decision on Tuesday in which the bank remained on hold, as it was widely expected. The bank in its accompanying statement also highlighted that the outlook remains uncertain and stressed that returning inflation to target is the highest priority. As for forward guidance, RBA stated that \u201cThe path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out, and remain data dependent\u201d. Despite the tone of the accompanying statement being rather hawkish the Aussie seems to have lost ground at the release as the market seems to have been expecting more. Furthermore, RBA Governor Bullock appears to have tweaked the bank\u2019s hawkishness, as she stated that \u201crates are at the right level to get inflation back to target\u201d which may imply easing monetary policy and thus may have weighed on the Aussie. On a macroeconomic level, we note the release of the retail trade growth rate for Q1 which came in lower than expected, implying a reduction of the demand side of the Australian economy. However, we should note that the RBA\u2019s interest rate decision and the retail trade growth rate were released before China\u2019s trade data and thus appear to have been overshadowed by the aforementioned increase in the imports rate. The next hurdle for Aussie traders may be the release of Australia\u2019s Employment data for April next Thursday. Should the data imply a resilient labour market, it could provide some leeway for the RBA to maintain its restrictive monetary policy, which may support the AUD and vice versa.<\/p>\n\n\n\n The CAD is about to end the week at the same levels it began, against the USD. On a macroeconomic level, we note the improvement of Canada\u2019s Ivey PMI figure for April, implying an increase in manufacturing activity which appears to have provided some short-lived support for the Loonie. We note that the time of this report, Canada\u2019s employment data for April has yet to be released. Thus, should the data imply a continuance of the slack in the Canadian employment market as reported for March, it could weigh on the CAD substantially. At a monetary level, we note the comments made by BoC Governor Macklem who during his testimony to Canada\u2019s financial committee stated that the Government’s spending has not been helpful in easing inflationary pressures in the economy. As such, should the Canadian Government increase spending, it could indirectly impact the bank\u2019s monetary policy approach and may tilt the narrative towards the hawkish side which may provide support for the Loonie. On a more fundamental level, we note that a possible improvement of the market sentiment could provide some support for the Loonie, given also its status as a commodity currency. Also, we note the sensitivity of the Loonie to oil prices, given Canada\u2019s status as a major oil-producing economy. Oil prices for the week seem to have risen slightly yet did not escape their downward trajectory. Should they continue to improve in the coming week we may see some support for the Loonie building up.<\/p>\n\n\n\n In a more general note, we expect the USD to reacquire some of its initiative in the FX market as the gravity and frequency of US financial releases seem to be increasing. Overall though we have to note that volatility may ease somewhat should there be no surprises, as we have a rather busy calendar next week. As for US equities, we note that US stock markets are about to end the week in the greens for a third week in a row, in a sign of a more risk oriented market sentiment. A number of high-profile companies released their earnings reports, yet in the coming week, we note that the release of the earnings reports of Alibaba (#BABA), HomeDepot (#HD), Cisco Systems (#CSCO), JD Inc (#JD), Baidu(#BIDU) and Walmart (#WMT) could catch the market\u2019s eye. On the fundamentals of US stock markets should Fed policymakers continue to stress the possibility of the Fed maintaining rates high for longer, the market sentiment could turn more cautious thus weighing on US stock markets. Furthermore, we note that gold\u2019s price is rising despite the relative inactivity of the USD, underscoring the absence of the negative correlation of the USD with the precious metal in the past few days. Hence we turn our attention to the decline of US bond yields the past few days, which may have made them unappealing for investors and thus may have provided some support for the precious metal\u2019s price.<\/p>\n\n\n\n
expected, which may weigh on the pound. On a macroeconomic level, we note the release of the preliminary GDP rate for Q1 earlier on today. Despite the preliminary GDP rates coming in higher than expected, managing to escape negative territory, implying the UK economy escaped the technical recession it was in. Hence, some optimism for the UK economy appears to have emerged, which may alleviate some of the downward pressures faced by the pound this week. For next week, we highlight the UK\u2019s employment data for March and April, in which should both releases imply a resilient UK labour market, it could provide support for the pound, despite being readings for two different months. On the flip side, an implication of a loosening labour market could weigh on the pound, as pressure on the BoE to cut interest rates earlier than expected may increase.<\/p>\n\n\n\n![\"\"](\"\/wp-content\/uploads\/2024\/05\/image-43.png\")
<\/figure>\n\n\n\nJPY \u2013 Japan\u2019s support for JPY shortlived?<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2024\/05\/image-44.png\")
<\/figure>\n\n\n\nEUR \u2013 Eurozone Preliminary GDP rate next week<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2024\/05\/image-45.png\")
<\/figure>\n\n\n\nAUD \u2013 RBA remains on hold<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2024\/05\/image-46.png\")
<\/figure>\n\n\n\nCAD \u2013 April Employment data due out today<\/h2>\n\n\n\n
![\"\"](\"\/wp-content\/uploads\/2024\/05\/image-47.png\")
<\/figure>\n\n\n\nGeneral Comment<\/h2>\n\n\n\n