EUR / USD
There was generally hawkish rhetoric from ECB officials during Friday. Council member Villeroy stated that it was reasonable to raise rates into positive territory by year-end. Bundesbank head Nagel stated that the window for taking monetary policy action is slowly closing and market expectations of a July increase intensified.
After a brief dip below the 1.0500 level, the Euro recovered ground and posted net gains into the New York open.
US non-farm payrolls increased 428,000 for April which was the same increase as reported for the revised March data and slightly above consensus forecasts of 395,000. Manufacturing payrolls increased 55,000 on the month and there were net increases across all major job sectors.
The unemployment rate held at 3.6% for the month and slightly above market expectations of 3.5%. There was a decline in the participation rate for the month and the household survey recorded an employment decline of over 350,000 on the month which will cause some unease within the Federal Reserve amid concerns over a lack of labour supply. Average hourly earnings increased 0.3% on the month, slightly with a year-on-year increase of 5.5% from 5.6% previously. The overall market impact was limited with the Euro able to hold above the 1.0500 level and consolidating just below 1.0550 with markets expecting another 50 basis-point rate hike in June.
CFTC data finally signalled a move back to a short Euro position for the first time since early January at close to 6,500 contracts. Risk appetite deteriorated on Monday which continued to provide an element of defensive dollar support and the Euro retreated to near 1.0500 with the US currency overall at a fresh 20-year high.
JPY
Treasuries gained ground after the US jobs data, but were unable to hold gains with selling pressure returning quickly and the 10-year held around 3.08% at the European close. There was very choppy trading in US equities with selling interest on rallies.
Minneapolis Fed President Kashkari stated that his own estimate of neutral interest rates remains around 2.0%, but markets continue to expect a hawkish Fed stance. From highs around 130.60, the dollar retreated to 130.30 at the European close before edging higher despite another round of losses on Wall Street.
There were further concerns over Chinese trends with a tightening of coronavirus restrictions in part of Shanghai. The latest Chinese trade data recorded slower export growth and a dip in imports which reinforced reservations over the Chinese demand outlook and Asian equities continued to retreat on Monday.
Overall risk appetite remained vulnerable, but the dollar strengthened to around 131.0 against the yen and close to 20-year highs as yield spreads dominated.
Risk conditions will remain very important with any rhetoric from Fed officials watched very closely in the short term ahead of Wednesday’s CPI release.
GBP
The UK construction PMI index declined to 58.0 for April from 59.1 previously, although this was marginally above consensus forecasts. There was the slowest rate of growth in new orders for 2022 with growth projections at the lowest level since September 2020 while there was further strong upward pressure on cost and prices.
Bank of England chief economist Pill confirmed that two members did not sign up to the BoE’s guidance as they considered that enough may have already been done. He added that the bank should no over-respond to short-term developments or be over-aggressive with policy moves.
Sterling briefly dipped below the 1.2300 level in early Europe on Friday, but managed to recover ground quickly with the currency heavily over-sold after very sharp losses. Sterling settled around 1.2340 at the Friday close with the Euro around 0.8550.
CFTC data recorded a further net increase in short Sterling positions to near 74,000 contracts and the largest short position since October 2019.
The Northern Ireland assembly election results confirmed that Sinn Fen would be the largest party which reinforced constitutional and Brexit concerns.
Sterling remained firmly on the defensive on Monday, especially with risk appetite weakening further and the UK currency dipped back below the 1.2300 level.
CHF
The Swiss franc lost ground on Friday with Federal Reserve tightening and hawkish ECB rhetoric undermining support for the currency during the day as markets continued to monitor developments surrounding yields. Higher German yields continued to underpin the Euro and it moved above the 1.0400 level and hit 2-month highs near 1.0450 before fading while the dollar was resilient. The Swiss franc again failed to secure significant support from weaker risk conditions on Monday with the dollar posted a fresh 26-month high around 0.9925 amid wider dollar strength. Rhetoric from National Bank officials will be monitored closely.
Technical Levels
