DXY depreciated by 0.4% to 105.7 in the overnight session, its lowest close since April 11. The greenback shed its haven status as worries of a broader conflict in the Middle East subsided. Despite a 1.7% rise to USD88.50 per barrel, Brent crude oil prices held below the 89-92 highs during the Iran-Israel tit-for-tat attacks. Instead, investors focused on the US earnings season, lifting the Dow, S&P 500, and Nasdaq Composite indices by 0.7%, 1.2%, and 1.6%, respectively. The US Treasury 10Y yield eased a third session by 1 bps to 4.60% from softer-than-expected US data negating talks that the Fed would not hike this year. However, DXY should be underpinned at 105 by Thursday’s US advanced GDP affirming the US’s economic resilience and Friday’s US PCE deflators tempering Fed cut bets.
EUR/USD appreciated 0.4% to 1.07, its highest close since April 11. Purchasing Managing Indices slowed to 50.9 in April from 52.1 in March in the US but improved to 51.4 from 50.3 in the Eurozone. Today, consensus expects German IFO to improve a third month to 88.8 in April from 87.5 in March, adding to recent optimism that Europe’s largest economy was turning the corner. Despite expectations for the US Federal Reserve to signal fewer rate cuts at its next FOMC meeting on May 1, the European Central Bank did not pre-commit to more rate cuts beyond the one for June. However, EUR/USD remains weighed by the EU’s negative and wide bond yield differentials against the US. The OIS market is still looking for the ECB to lower rates by 74 bps this year, which is more than the 43 bps discounted for the Fed.
GBP/USD appreciated most on Tuesday by 0.8% to 1.2450. Mirroring the Eurozone, the preliminary UK PMI was stronger-than-expected at 54.0 in April; consensus had expected a slowdown to 52.6 from 52.8 in March. At the Bank of England, hawkish Jonathan Haskel and Chief Economist Huw Pill pushed back early rate cut expectations fuelled by last week’s dovish comments by Governor Andrew Bailey and Deputy Governor Dave Ramsden. Pill maintained that the risk of lowering rates too soon outweighed that of moving too late. Although the UK’s CPI inflation kept falling to 3.2% YoY in March from 3.4% in February, it was firm at 0.6% MoM for a second month. Even so, the OIS market has started betting that the BOE would reduce rates earlier and more than the Fed this year. Hence, GBP/USD still faces downside risks from its negative bond yield differentials vs. the US.
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The Hubble Space Telescope is launched from the Space Shuttle Discovery in 1990.
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