Overview: The US dollar is trading quietly in a mixed fashion, mostly confined to the ranges seen at the end of last week. This could prove to be a pivotal week. The weakness in the US survey data may become evident in the real sector data, with a dismal Q1 GDP reading that may show the economy stalled before the tariff bite and job growth may have slowed considerably. Tomorrow is the President Trump is 100th day of the second term and the world is on edge. The tariff on de minimis goods comes into effect this week and the most impacted Chinese companies have announced large price increases. Many expect Trump to announce some sort of modification or delay in the 25% tariff on auto parts that is to start later this week. Meanwhile, a controversy is brewing. Trump claims that there are trade talks ongoing with China and that he has talked with Chinese leader Xi. Beijing denies it. Observers must decide the veracity, and many appear to believe China over Washington. There is a light economic calendar today while Canada holds its national election. Carney's lead has narrowed, but he is still favored to get a popular mandate.
Equities are mostly firmer. The large bourses in the Asia Pacific but China, Hong Kong, and Singapore (which voted over the weekend) finished higher. Europe's Stoxx 600 is up for the fifth consecutive day, while US index futures are sporting minor losses. Benchmark 10-year yields are mostly 2-4 bp firmer in Europe. The 10-year Treasury yield is up three basis points near 4.26%. Gold is trading softly but is holding above last week's lows near $3260. A break could spur further profit-taking toward $3200. June WTI held below $64 and is trading below $63. Last week's low was nearly $61.50.
USD: The Dollar Index remains in its trough. It has spent the last eight sessions below 100.00, which was last year's low. It remains so today: 99.45-99.85. This month's high was set on April 1 slightly below 104.40. Momentum indicators are suggesting caution as they appear to be turning up. A close above 100.00 may force late shorts to cover after finding support early last week around 98.00. The big week for US data that leads up to next week's FOMC meeting begins slowly with the Dallas manufacturing survey. It is not a market mover and most of the regional Fed's April surveys have been weaker than expected. The first estimate of Q1 GDP. The median forecast in Bloomberg's survey is that the economy nearly stagnated in Q1 (0.2% annualized), and this is before the impact of the tariffs and the uncertainty surrounding them by the delays and contradictory reports. It reminds us of Woody Allen's criticism of a restaurant, "the food was poor, and the servings were small." The jobs data at the end of the week is also important. Labor market data has been holding up better than many expected, but the crack is likely to appear soon. The median forecast in Bloomberg's survey sees a 130k increase in non-farm payrolls, down from 228k in March and an average of about 150k in Q1. We suspect slower jobs growth needs to be accompanied by a rise in the unemployment rate to be meaningful. The CPI and PPI steal most of the thunder from the PCE deflator. The headline is expected to slow to 2.2% from 2.5% and the core may slow to 2.5% from 2.8%.
EURO: After reaching almost $1.1575 last Monday, the euro pulled back and found support in the $1.1310-20 area in the last three sessions. The momentum indicators have rolled over, which ought to be seen as a cautionary signal to euro bulls. It is in a narrow range (~$1.1330-$1.1385) today. The uptrend line drawn off March and April lows is found near $1.1165 at the end of the week. The eurozone's week began slowly too and the May Day holiday sees many centers close on Thursday. This week's highlights include Q1 GDP (0.2% quarter-over-quarter) and the preliminary estimate of April CPI. For the last four years, consumer prices rose by 0.6% in April. A rise of that magnitude now would leave the year-over-year rate steady at 2.2% and will not stand in the of another ECB rate cut in June.
CNY: Last week, the dollar found support in the CNH7.2765-CNH7.2790 area. It is trading firmly even if quietly between about CNH7.2880 and CNH7.3025 today. If the greenback posts corrective upticks against the G10 currencies, it could recover toward CNH7.3300-50. The PBOC continues to embrace the higher volatility by adjusting its daily reference rate for the US dollar a little wider than earlier this year. Last week's average change was a little more than 0.03%, and this month's average is nearly 0.045%. In January and February, it was a little more than 0.01%. Today’s fix was at CNY7.2043 (CNY7.2066 on Friday). Given how well the yuan is managed, this week's April PMI is of little consequence. Economists, including those at the IMF have revised down their growth forecasts for China. In order to achieve its 5% growth target, more stimulus is needed, and the longer it waits more may be required. China reportedly has reduced its retaliatory tariffs on some US products, but it does not seem like a concession as much as a way to reduce self-harm for products that are less easy to find substitutes for in the short-term. China celebrates the May Day holiday on May 1-2 and May 5.
JPY: The dollar reached a nine-day high before the weekend and a smidgeon above JPY144.00. It has practically met the (50%) retracement of the leg down since the April 9 high (~JPY147.30). The momentum indicators have turned up. It is trading in a JPY143.30-JPY143.90 range. A convincing push above JPY144 targets the JPY144.85-JPY145.20 area. March retail sales and industrial production are expected to have contracted in March, which underscores our assessment that the stagflation better characteristic of Japan than the US. The highlight of the week though is the BOJ meeting that concludes on May 1. The BOJ will stand pat with its overnight rate at 0.50%, but it is likely to trim its growth and inflation forecasts. The swaps market has about 18 bp of tightening discounted this year, down from 30 bp at the end of March.
GBP: Sterling peaked last week near $1.3345 and on the pullback found support near $1.3235. It is still knocking on the $1.3345 high and has not been below $1.3280 today. The momentum indicators warn of a consolidative/corrective phase. A break of $1.3200 could open the door to another half-to-full cent loss. It is a light week for UK data ahead of the May 8 BOE meeting. House prices and some consumer credit and mortgage lending data are featured. The market is confident that there will be a quarter-point rate cut. The swaps market is pricing in nearly four cuts this year. The IMF suggested there was room for three. The Tory's political fortunes look dim in the local elections on May 1. Investors may be most sensitive to how Farge's Reform Party performs.
CAD: The greenback recorded a six-month low last Monday near CAD1.3780. It recovered to poke briefly above CAD1.3900 in the middle of the week before consolidating in the past two sessions. It is subdued today in a CAD1.3850-CAD1.3890 range. With the momentum indicators turning higher, there may be potential toward CAD1.4000-25, where the 20-and 200-day moving averages converge with the (38.2%) retracement of this month's decline. Canada goes to the polls today and surveys show that the Liberals under Mark Carney lead has narrowed but is still ahead. He has jettisoned some unpopular policies under the former Liberal government and appears committed to deepened relations with Europe. It is also selling a record amount of its oil to China. The February GDP data in the middle of the week will draw passing interest. The US tariffs and uncertainty are disruptive and have spurred more pessimistic growth forecasts. However, February may only give a small foretaste of what is coming. Canada lost 10k full-time jobs in February before losing 62k in March.
AUD: The Australian dollar extended its recovery off the five-year low recorded on April 9 (~$0.5915) to reach nearly $0.6440 last Tuesday. It reversed then and settled below Monday's low to leave a potential key reversal in its wake. Follow-through selling saw it give bac about a cent in the next two sessions before consolidating ahead of the weekend. It slipped slightly below $0.6370 today but is nearly $0.6400 in late in the European morning. Momentum indicators are mixed, but the downside risk may extend into the $0.6280-$0.6315 area. Australia will report Q1 CPI Wednesday and while the headline may be sticky the underlying core measures will likely ease further. March trade and retail sales will be of interest to economists fine-tuning the Q1 GDP forecast. The median forecast in Bloomberg's survey stands at 0.5% (quarter-over-quarter), largely steady even if uninspiring. The national election is on May 5, and Labor's Prime Minister Albanese is expected to be the first prime minister in a couple of decades to serve a second consecutive term.
MXN: The peso continues to surprise with its resilience. It finished at its best level before the weekend since the middle of last October. The dollar posted an outside down day ahead of the weekend, near MXN19.5040. It reached MXN219.5765 today but is hovering above last week's lows in Europe. There may be a little juice left in the grape, with near-term potential toward MXN19.25. The carry (wide rate differentials) give peso longs some staying power, but the risk-reward changes as MXN19.00 is approached. The dollar peaked earlier this month near MXN21.08. Mexico reports March jobs data and trade figures today ahead of Wednesday Q1 GDP. After contracting by 0.6% in Q4 24, the Mexican economy likely steadied in Q1 25 (flat to 0.1% quarter-over-quarter). March remittances will be reported at the end of the week. They have been slowing since reaching a peak in the middle of last year. Nevertheless, there is a powerful seasonal pattern that sees March remittances improve sequentially from February. It has not failed to do so for the past 20 years.
Reviewed by Marc Chandler
on
April 28, 2025
Rating:
