The Dollar continued to gain this week, as stock markets hit new all-time highs (again), commodities cooled and a rallying Sterling, ahead of the BOE, retraced on the Dovish outcome. US data was mixed with Q1 GDP confirmed at 6.4% and more signs of weakness in the jobs market.
The Dollar surged and has held onto gains following the surprise DOT-PLOT changes suggested by the FOMC, which included 2 x 0.25 bp rises in 2023. The previous assumption was that rate rises were not likely before 2024. The BOE avoided a hawkish tilt this time but it looks like tapering measures will start after the summer. Sterling got a hit, US GDP was confirmed at 6.4% for Q1 & Durable Goods disappointed and PCE was in-line with expectations. The much reduced $1.2 trillion Bipartisan Infrastructure Bill got approval from President Biden but with a caveat of extra spending requirements for his “human infrastructure” plans.
Jobs, Earnings and Unemployment remain very much in focus. The weekly US unemployment claims missed expectations again this week, but they are trending lower with continuing claims improving. This week’s 411,000 was 30,000 higher than expected and last week’s 412,000 was revised higher to 418,000.
The vaccine rollouts continue to drive sentiment, but the virus variants remain a significant concern and talk of 3rd or 4th waves persist. The US has fully vaccinated over 150 million citizens, approximately 45% of the population, but many low-income countries have less than 5% vaccination rates.
FX volatility picked up following the surprise from the FOMC and the Dovish BOE. The USDIndex spiked to 92.40 from lows last week of 90.30, before settling around 91.70. EURUSD dipped to 1.1845 lows before recovering to 1.1950, having started the month at 1.2250. USDJPY rallied from 109.80 ahead of the FED to breach 111.00 before finding resistance, while Cable tested down below 1.3800, then rallied to 1.4000 ahead of the BOE before retracing again to 1.3900.
Global stock markets pushed higher to post more new all-time highs. The tech stocks led the recovery but remain volatile as yields cooled and the “Meme” stocks slipped from centre stage. The USA500 traded under 4,140 this week, before recovering the previous resistance at 4,230 and posting new highs over 4,270.
The Gold price collapsed again this week, following the dollar gains, and traded as low as $1760 before stabilizing around $1780. The key precious metal opened trading in June at $1915, while Silver, Copper and other commodities were also caught in the resurgent Dollar.
USOil prices continue to rally, and this week topped at $73.96 following a significant drawdown in inventories. Several analysts are looking at a $75.00 average price for the second half of 2021 with some even talking up $100.00 before the year-end.
The yield on the US 10-Year Treasury Note, very much in focus following the FOMC, gyrated from highs at 1.569% to 1.445% lows before settling around 1.49% but remain anchored under the key support level at 1.60%.
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Stuart Cowell
Head Market Analyst
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