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  • richard evans

EUR fails to benefit from rate rise

Good morning

ECB did raise rates 25bps to 3.25% yesterday as widely expected. The statement was pretty hawkish I thought, with Lagarde making it clear some members wanted a 50bps raise and there should be more to come, at least another 50bps over the coming months according to many. Lagarde added that pausing rate rises was not on the agenda and that ECB can raise rates even if Fed are pausing their rate rise cycle. Despite this, EUR has failed to make gains, EURUSD failing again ahead of 1.1100 despite a generally weak USD, and EUR has lost ground to GBP with GBPEUR up at 1.1430, close to the 1.1450 area that has capped the upside since late last year. Perhaps it was Lagarde’s admission that domestic demand is likely to remain weak, but overall she says the economy is strong.

GBPUSD is above 1.2600 for the first time in almost a year, hitting a high so far around 1.2635. Have we finally put that September Truss/Kwarteng nonsense whch saw GBPUSD down below 1.0400 behind us? Let’s hope so! As expected Tories are losing out in the local elections, Labour gaining most but LibDems, Greens and independents also benefitting.

BoCs Macklem was a bit hawkish yesterday, saying there is a risk inflation remains stuck above 2% target and that BoC is still looking to combat inflation, suggesting we could see more rate rises should things not improve. USDCAD trades at 1.3500, down from 1.3620 or so yesterday morning. Some are looking for CAD to push even higher against USD. RBA also made some hawkish noises, very similar to the BoC comments, namely inflation remains above target with risks to the upside, potentially requiring higher interest rates. AUD moved higher, AUDUSD up to 0.6730, GBPAUD down to 1.8735.

Meanwhile the outlook for US regional banks continues to look bleak despite Powells recent assurance that the crisis was behind us, shares in PacWest who I mentioned earlier in the week closed just above $3 and shares in WesternAlliance Bancorp slipped below $12 at one stage yesterday having started the week near $40 as rumours did the rounds they were looking for a possible sale. A vicious circle, the more funds are taken out the lower the price goes and the lower the price goes the more funds are taken out which makes it nigh on impossible to operate. We’ve not seen the end of this. There is however some talk of market manipulation of banking shares, US regulators are apparently looking into this.

There is some speculation that gold may make another attempt on the $2070 area. It failed around there in both 2020 and 2022, and again earlier this week but with Fed looking like they will pause rate rises and indeed some talk of rate cuts later in the year, the potential for gold to finally crack those upside areas is greater than it has been for a while.

US nonfarm payrolls will be the key today. Some concerns over the US labour market after some weak JOLTS jobs data. Headline expected to be around +180k from +236k last month, I wouldn’t be surprised to see a lower number perhaps with downside revisions to previous months. Markets likely to be quiet ahead of that release. Risks are quite two-way on this, a stronger number could lead the market to rethink the recent weaker dollar idea but the bigger risk must surely be to the downside for USD.

A few days of pretty decent weather have ground to a halt, we have rain here and the forecast currently suggest this could go on into mid-May. We do have the Kings coronation tomorrow, the poor crowds that are already assembling on the route he’ll take will be finding it tougher today given the weather although temperatures are likely to remain high. Whether you are a fan of royals or not, or perhaps like me a bit ambivalent, this is a hugely historic event and one that I hope passes peacefully, and enables the UK to show off its proud history to the world.

Another long weekend so unlikely to be a report Monday unless anything dramatic happens in the meantime. Enjoy the break…I could get used to these four days weeks….

- 09.00 ECBs Elderson speaks

- 10.00 EU retail sales

- 13.30 US nonfarm payrolls

- 13.30 CAD employment

- 18.00 Feds Cook speaks

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