Here is what you need to know for next week:
Markets continue to move fast. A month ago, Silicon Valley Bank (SVB) was still relatively unknown. Later, came the banking crisis, and now it looks like it’s the beginning of worries about global growth after softer economic data. The Federal Reserve (Fed) went from a potential “higher for longer interest rates” to a “hike despite the turmoil”, and now there is no clear forward guidance. The bond market shifted expectations from “higher for longer” to rate cuts by the third quarter, amid global growth concerns. After recent data, including the March US Jobs report, the Federal Reserve (Fed) and many central banks look set for the last round of interest rate hikes, before taking a pause.
Next week’s inflation numbers could provide some clarity regarding the potential trajectory of monetary policy. On Wednesday, the March Consumer Price Index is due (also the FOMC minutes) and on Thursday, the Producer Price Index. Retail Sales and Consumer Confidence on Friday will offer a perspective on the state of the consumer.
Analysts will continue to track the Fed facility usage and banking deposit outflows. Concerns regarding the banking industry continue to fade, but it is too soon to declare victory. A new earnings season begins next week. On Tuesday, China will report March inflation and, on Thursday, trade data.
The beginning of the week looks set to be quiet, considering that it will be a holiday in many countries. Market activity will return to normal on Tuesday. Traders will digest the US March jobs report. The numbers came in line with expectations. Nonfarm payrolls rose by 236,000, the smallest gain in two years, but at the same time shows a healthy labor market.
Despite rising on Friday after the NFP, the US Dollar Index posted the fourth weekly decline in a row, around 102.00. It hit fresh monthly lows but then recovered some ground as US yields stabilize. EUR/USD continued to move higher and posted the highest weekly close in a year, supported by hawkish expectations from the European Central Bank (ECB). The Euro is looking at the 1.1000 mark.
The Pound was among the top performers of the week. GBP/USD rose for the fourth week in a row, posting the highest close since June 22; however, it failed to hold above 1.2500. The Japanese Yen also outperformed as the bond market points to a recession. USD/JPY closed around 132.00, holding in a familiar range. A new era begins at the Bank of Japan as Kazuo Ueda replaces Hurohiko as governor.
The Loonie was the best in the commodity currencies space, supported by the rally in crude oil prices and by stronger-than-expected data from Canada. USD/CAD bottomed near 1.3400 and then rebounded to 1.3500, trimming gains. On Wednesday, the Bank of Canada will announce its monetary policy decision. It is expected to hold the key interest rate at 4.50%.
AUD/USD posted another weekly close around 0.6650 as it continues to face difficulties above 0.6700. The Reserve Bank of Australia (RBA) left the interest rate unchanged at 3.60% and Governor Lowe said it does not imply it’s the end of the tightening cycle. Next week, Australia will release the March employment report. An increase in 41,600 jobs is expected and the Unemployment rate to stay at 3.5%.
Despite the hawkish surprise from the Reserve Bank of New Zealand (RBNZ) by raising rates by 50 basis points, NZD/USD ended the week marginally lower, at 0.6240, after a reversal from 0.6380.
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