USDollar concluded last week with significant losses, influenced by a set of factors that realigned market expectations and investor sentiment. A pivotal moment came with Fed Chair Jerome Powell’s much less-hawkish-than-feared remarks at the FOMC press conference, coupled with disappointing US employment figures. These developments led markets back to anticipate two Fed rate cuts by year-end. This recalibration in interest rate expectations spurred a rally in US stocks and a marked reduction in Treasury yields, which in turn exerted additional downward pressure on the Dollar.
Compounding Dollar’s decline was Japan’s purported intervention in the currency markets. Substantial buying in Yen, after it breached a significant psychological level against Dollar, helped boosted Yen to the top for the week. This intervention appeared timed strategically around key market shifts, echoing Japan’s readiness to engage in currency markets any time of the day.

Meanwhile, Dollar was only the week’s second worst casualty. Canadian Dollar ended as the weakest among major currencies, suffering from dual pressures: markets’ increased predictions of a near-term rate cut by BoC and the protracted downturn in oil prices, which was somewhat alleviated by emerging hopes for ceasefire between Israel and Hamas.

Conversely, Australian Dollar secured its position as the second-strongest currency, benefiting from delayed expectations of interest rate cut by RBA. Additionally, a renewed risk-on mood, particularly around Hong Kong and China’s financial markets, further uplifted the Aussie. New Zealand Dollar followed closely, buoyed by similar risk-on sentiments.

In Europe, Swiss Franc distinguished itself among its peers, rallying robustly against other major European currencies following unexpectedly high inflation readings.

-Bank of England meets on Thursday, unlikely to signal rate cuts
-Reserve Bank of Australia could maintain a higher-for-longer stance
-Elsewhere, Bank of Japan releases summary of opinions
-BoE – No rate cuts yet

Britain’s economy seems to have escaped the shallow recession it fell into last year, and has finally entered the recovery phase. Business surveys point to solid growth in the first quarter and even stronger momentum in the second quarter, powered by a rebound in consumer spending as wage growth has remained resilient.

The dark side of this economic resurgence is that inflation remains persistently hot. The core CPI rate held above 4% in March and business surveys warn of a reacceleration in the coming months as companies lift their prices to pass rising costs onto consumers.

In this light, the Bank of England is unlikely to signal any imminent rate cuts when it concludes its meeting on Thursday, reflecting the stubbornness of inflationary pressures. Of course, that wouldn’t be surprising for investors, who currently expect the first rate cut to be delivered in August.

A message that rate cuts are still some distance away could benefit the pound, although the broader FX reaction will also depend on the new economic forecasts and the vote composition of the Committee. A single member voted for an immediate cut last time, but given the recent string of encouraging data, this official could also vote for keeping rates unchanged this time.

In the big picture, the outlook for the British pound seems cautiously optimistic. While sterling has lost about 1.5% against the mighty US dollar this year, it has gained a similar amount against the euro, and almost 7% against the sinking Japanese yen. Therefore, expectations of higher-for-longer rates have supported sterling, even if it hasn’t shown up against the dollar.

Another element that has supported the pound has been the risk-on tone in equity markets, given its strong correlation with global risk sentiment. Assuming these factors remain in force, the currency could continue to shine, at least against the euro and yen.

Beyond the BoE meeting, the nation’s GDP numbers for the first quarter are out on Friday, and will likely show that economic growth flipped positive after a minor contraction late last year.

RBA unlikely to rock the boat

Crossing into Australia, the Reserve Bank will wrap up its own meeting early on Tuesday. No action is expected, and judging by incoming economic data, policymakers are unlikely to change their neutral tone either.

Consumer and producer inflation came in hotter than expected in the first quarter, signaling that the path for bringing inflation back down might be slower than the central bank had anticipated. The strength in the labor market reinforces this notion, alongside the rapid increases in house prices.

Bank of Japan releases summary of opinions

Over in Japan, the government has intervened in the FX market to buy the sinking yen, propelling the currency more than 3% higher this week. That said, the fundamental factors that pushed the yen to its lowest levels in three decades are still present, raising questions about the sustainability of this recovery.

For the yen to enjoy a proper trend reversal, interest rate differentials need to narrow – either with the Fed cutting rates or with the Bank of Japan raising them. Neither seems likely over the next few months, which suggests the yen could remain under pressure overall, although FX interventions might help ensure it doesn’t hit new lows.

The Bank of Japan will release the summary of opinions from its April meeting on Thursday, which will provide some clues around the potential timing of the next rate increase, alongside the latest batch of national wage numbers.
GOLD Markets : The Relative Strength Index (RSI) indicator on the daily chart declined below 50, pointing to a bearish tilt in the short term. Additionally, the last five daily XAU/USD candles closed below the 20-day Simple Moving Average (SMA).
The Fibonacci 23.6% retracement of the February-April uptrend forms a pivot level at $2,300. In case Gold continues to use that level as resistance, technical sellers could remain interested. In this scenario, $2,280 (static level) could be seen as interim support before $2,245 (Fibonacci 38.2% retracement) and $2,235 (50-day SMA).

On the upside, resistance levels could be seen at $2,340 (20-day SMA), $2,360 (static level) and $2,400 (end-point of the uptrend) once XAU/USD stabilizes above $2,300. SELL ON RALLIES towards $2,340 is the best strategy
The US economic docket will not feature any high-tier data releases that could impact Gold’s valuation in a significant way next week. On Thursday, Trade Balance data from China will be watched closely by market participants. In case China’s trade surplus widens more than expected in April, the initial market reaction could help XAU/USD push higher, with investors assessing that as a positive development for Gold’s demand outlook.

Market participants will also keep a close eye on comments from Fed officials next week. According to the CME FedWatch Tool, the probability of a Fed policy pivot in September stays slightly above 50% after the Fed event. In case Fed policymakers leave the door open to a rate cut in September, the market positioning suggests that the USD could come under selling pressure. On the other hand, the USD is likely to hold its ground and make it difficult for XAU/USD to gain traction if Fed officials voice favoritism of a rate reduction closer to the end of the year. Nevertheless, policymakers will have several more inflation and employment data to assess until September and they could avoid offering any clear signals regarding the timing of the policy pivot.

Finally in Canada, employment stats for April will hit the markets on Friday.

Prepared by: Mr. SAM KIMA, Senior Vice President