CAPTALDIGEST, MARKET REVIEW. 6TH JUNE 2022
MONDAY 30/6/2022 – STERLING RANGEBOUND NEAR ONE-MONTH HIGH
The British pound edged higher against a faltering U.S. dollar on Monday and was set for its first monthly gain in five as the risk-sensitive currency benefited from improving sentiment. As markets have readjusted their rate hike expectations from the Federal Reserve lower, the dollar index =USD has weakened over 3.5% from its mid-May peak. This helped lift sterling after it reached its lowest level since March 2020 earlier in the month. “The rebound in GBPUSD largely reflects USD depreciation,” said Vasileios Gkionakis, EMEA head of CitiFX G10 strategy, who remains bearish on sterling against the euro and commodity FX, citing weakening growth, depleting household savings, absence of meaningful fiscal stimulus and a likely resurfacing of Northern Ireland protocol-related headlines. The trading range was relatively narrow through Monday as U.S. stock and bond markets were closed for the Memorial Day public holiday, while the British calendar is looking light this week with markets closed on Thursday and Friday for the Spring Bank Holiday and Queen’s Platinum Jubilee.
TUESDAY 31/6/2022 – DOLLAR RISES AS INFLATION WORRIES HURT RISK SENTIMENT
The U.S. dollar strengthened across the board on Tuesday as Treasury yields climbed and worries over a further acceleration in global inflation depressed investors’ risk appetite. The dollar was supported by demand for safe havens. U.S. stocks fell on Tuesday as soaring oil prices and hawkish comments from a U.S. Federal Reserve official spooked investors. U.S. Treasury yields climbed on Tuesday, a day after Fed Governor Christopher Waller said the Fed should be prepared to raise interest rates by a half percentage point at every meeting from now on until inflation is decisively curbed. The U.S. Dollar Currency Index, which tracks the greenback against six other major currencies, was up 0.3% at 101.76, on pace for its best one-day gain in nearly two weeks. The dollar index, up about 6.4% for the year, is down 1.4% for May, on pace for its worst monthly loss in a year. President Joe Biden told Fed Chair Jerome Powell on Tuesday that he will give the central bank the space and independence to address inflation as it sees fit, according to a top aide.
WEDNESDAY 1/6/2022 – FOREX-Dollar hits two-week peak to yen amid U.S. yield rise
The dollar rose to a two-week high versus the yen on Wednesday, lifted by higher Treasury yields as global inflation worries flared anew. The dollar index, which measures the currency against six major peers, including Japan’s, rose 0.29% to 102.05, extending a 0.38% rally from Tuesday, when data showed euro-area consumer inflation soaring to a record. The greenback climbed 0.42% to 129.22 yen, and earlier touched 129.295 for the first time since May 18. Benchmark 10-year Treasury yields touched 2.884% overnight, the highest since May 19. The euro slipped 0.26% to $1.0706, continuing its retreat from the more-than-one-month peak of $1.0787 hit on Monday after the European Central Bank shifted to a more hawkish posture. The dollar index swooned to a one-month low of 101.29 on Monday after pulling back from a nearly two-decade high above 105 reached in mid-May, as U.S. inflation and other economic indicators showed signs of peaking amid the Federal Reserve’s aggressive policy tightening. Markets have priced half-point interest rate rises for the Fed’s meetings this month and next, in line with what policymakers have been signalling, but the outlook beyond that is murky. A monthly U.S. jobs report due on Friday may offer new clues. “It’s still too early to call a long-term DXY peak,” Westpac strategists wrote in a client note, referring to the dollar index.
THURSDAY 2/6/2022 – FOREX-DOLLAR FALLS AS INVESTORS REACH FOR RISKIER CURRENCIES
The U.S. dollar fell across the board on Thursday, ceding ground gained in recent sessions as firmer risk sentiment prompted investors to reach for higher-yielding currencies. Stock markets around the world rose on Thursday after recent weakness, as bets Saudi Arabia may boost crude production cooled oil prices, helping balance concerns over surging inflation and monetary policy tightening. “There are a few factors working against the greenback today, but it’s mostly risk-on sentiment,” said John Doyle, vice president of dealing and trading at Monex USA. News that Saudi Arabia may pump more oil and reports that China will ease some COVID restrictions are helping bolster risk sentiment, to the safe-haven dollar’s disadvantage, Doyle said. Oil prices were little changed, erasing losses made early on Thursday after OPEC+ agreed to boost crude output to compensate for a drop in Russian production. Shanghai sprung back to life on Wednesday after two months of bitter isolation under a strict COVID-19 lockdown, with shops reopening and people going back to offices, parks and markets.
FRIDAY 3/6/2022 – FOREX-DOLLAR EDGES LOWER AHEAD OF U.S. JOB DATA
The dollar edged lower on Friday as risk appetite picked up ahead of U.S. jobs data later in the day. Equities rose as investors hoped U.S. data might sway the Federal Reserve to slow its current aggressive pace of interest rate hikes over the coming months. The ADP National Employment Report on Thursday showed U.S. payrolls rising at a slower-than-expected pace last month. Trading on Friday is quieter with London markets shut for a public holiday. The dollar eased 0.1% to 101.75 against a basket of other major currencies,