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  • richard evans

Fed unchanged, Powrell not quite as hawkish as expected. USDJPY takes another dive.

Good morning


Well what a welcome to May.  Woke up in the night to witness a spectacular thunderstorm, heavy rain and incredible lightning.  Been a long time since i’ve seen lightning like that. 


It’s also a rare event that I have to rescue animals, but yesterday morning during a meeting I was alerted two the fact there were two Egyptian geese in my driveway, with their brood of five or six baby geese.  It has happened before, they get lost and then can’t find their way to the river that runs at the back of my garden.  Much shepherding later, they were safely directed through to the garden where they trotted off happily, the father goose perhaps muttering something like ‘we’ll laugh about this one day’ and Mother goose was scolding him for going the wrong way.


Anyway, to the markets, where a few things are worth mentioning.  I’ll have to start with UDSJPY which seemed to be trotting along quite happily in the mid-high 157s when, late in the US session, huge selling took it to 153.00 is the space of thirty minutes or so.   It had recovered a lot of those losses, reaching 156.25, but as I type is back down to 155.25.  Still no official word on intervention but i’d struggle to see what else would create that sort of move. 


Helping the USDJPY move lower initially was a marginally less hawkish Fed than had been expected.  Yes, of course they left rates unchanged and made it clear the current path of inflation put rate cuts off the table, however Powell did add that policy was still sufficiently restrictive, thereby steering the markets away from possible rate rise talk.  Rate cuts are much delayed but not completely off the table in the coming months although if we were to see one in 2024 it can only be late, perhaps even as late as December.  USD weakened, GBPUSD trading up from 1.2480 to 1.2550 and EURUSD from 1.0670 to 1.0730.  For the record they are now 1.2525 and 1.0715, leaving GBPEUR 1.1690.


Earlier in the day we’d seen some mixed US jobs numbers, with ADP coming in higher than expecetd and with an upside reision to the previous months reading.  JOLTS however was on the low side, suggesting wage growth could begin to moderate and this could encourage the Fed not to pay too much attewntion to the recent higher than expected ECI.  Wage growth could also be impacted by the number of immigrants looking for work, which is liekly to drag wages lower.  In addition to the employment numbers, we had the latest ISM manufacturing PMI.  The headline was expected to come in above 50, but actually disappointed at a lowly 49.2.  Worth noting though that the employment index came in higher than last time.


BoC’s Macklem spoke yesterday and managed to sound pretty dovish, saying they are getting close to cutting rates and adding that BoC rate moves are not dictated by the Fed.  USDCAD traded to a high of 1.3785, GBPCAD to 1.7225, although both are off those highs right now at 1.3720 and 1.7185 respectively.


China President Xi is heading to Europe at the weekend wherer he’ll visit France, Serbia and Hungary.  I’m not sure if he will go to Germany, who recently arrested four Chinese spies.  Hungary is an odd choice but I suspect he’ll have noticed that they are not the most pro-Europe country and the sceptic in me thinks they could be looking to create a greater divide.


Not much in the way of economic data today, the main event comes with the US nonfarm payroll numbers tomorrow.   For now we’ll keep an eye on Yen for further signs of intervention and see whether USD loses further ground as the markets digest Powell’s words yesterday.


-  09.00 EU manufacturing PMI

-  13.30 US initial jobless claims

-  13.45 BoCs Macklem speaks

-  15.00 US factory orders

-  21.15 ECBs Lane speaks


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