IFX Market Report: Tuesday 17th May 2022

The dollar depreciated against other major currencies for the third day in a row yesterday, tempering a long rally as investors withdrew funds and lowered expectations of US interest rate hikes following member comments from the Fed, which excluded a 75bp hike for now. We expect appearances by a handful of Federal Reserve speakers on Tuesday, including Chairman Jerome Powell tonight at 8pm. Futures markets are expecting back-to-back 50 basis point hikes in June and July and for the US benchmark interest rate to hit 2.75% by the end of the year. However, there are growing expectations that other central banks will catch up.

The Chinese yuan also stabilized after a sharp drop that saw it fall more than 6% in one month, as Shanghai is about to emerge from its torpor. The city has recorded three straight days with no new COVID-19 cases outside quarantine zones, a milestone that in other cities signalled the start of the lifting of restrictions. A pause in the yuan's slide as well as an easing in general market volatility has put the dollar's gains on hold, for now. It last traded at 6.7795 per dollar.

The British pound has rebounded around 1.5% from its two-year low and hit $1.2390 this morning after the jobs data. The UK unemployment rate fell slightly to 3.7% in the first quarter of 2022, posting lowest figure since 1974 and lower than 3.8% for the previous period and the forecast 3.8%. For the first time since the start of the statistics, there are fewer unemployed (1.257 million) than job vacancies, which reached a new record high of 1.295 million.

The spread between German and US 10-year real yields narrowed by more than 30 basis points this month and central banks in Britain and Australia raised rates.

The European Union and the United States want to strengthen global supply chains in order to deal with the consequences of the war in Ukraine. Production and access to key components are disrupted resulting in an increase in the cost of living on both sides of the Atlantic. The two partners wanted to show a common front Monday in Paris on the occasion of the second Trade and Technology Council.

Cable made some gains for a third consecutive day as GBPUSD opened at 1.22574 and close at 1.23152 for the weekend.

GBPEUR saw some stability yesterday with the pair opening at 1.1738 and closing at 1.1777 and thus following the exact same trend as the day before.

EURUSD made little gains again yesterday with a pair that opened at 1.0418 and closed at 1.0431.

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