26 April 2022 – Daily FX Update

Overview

Market worries about oil supply

Gold safety is dimmed

Yen might reach 135

COVID-19 hits harder in China

FOREX

U.S. Dollar Index

The dollar held near a two-year peak on Tuesday as concerns about the economic impact of China’s COVID-19 lockdowns held up the greenback’s safe-haven appeal and aggressive U.S. interest rate hike expectations kept bond yields elevated. The dollar index was 0.13% lower at 101.59 after hitting a two-year peak of 101.86 overnight. It has gained 3.3% this month, its largest month of gains since November 2015.

Hawkish comments by central bank policymakers raised the prospect of aggressive interest rate hikes. The most powerful came from the U.S. Federal Reserve, which markets expect to raise rates by a half-point at each of its next two meetings.

Sterling Pound

The Bank of England is expected to raise interest rates for the fourth meeting in a row. Meanwhile, investors focus on its signals about further increases in borrowing costs after that.

Last month, the BoE softened its language on the need for more policy tightening. But financial markets still expect the BoE to raise interest rates to around 2.25% by the end of this year, three times their current level.

The pound was at $1.2744, up 1.8%, having hit its lowest since September 2020 overnight. U.S. futures market data shows funds have amassed their biggest wager against the pound since October 2019, a bet now worth close to $5 billion.

Japanese Yen

The dollar was little changed against the yen at 128.16. The Japanese currency has managed a very slight recovery this week from last week’s 20-year low of 129.40.

Market participants expect that the Japanese government may directly intervene in currency markets to stop a further slide in the currency from around a 20-year low against the dollar.

While Japanese households are suffering from a rise in fuel prices while the weaker yen increases the cost of consumption. On Tuesday, Prime Minister Fumio Kishida is also expected to announce measures to alleviate some inflation pain.

Indices

U.S. Indices

The S&P 500 moved in negative territory for much of the session but extended gains after Twitter’s announcement. The S&P 500 growth index ended up over 1% bouncing back from an earlier decline. Nearly a third of S&P 500 index firms are due to report this week. Of the 102 companies in the S&P 500 that posted earnings so far, 77.5% reported above expectations.

Dow Jones gained 0.7% to 34,049.46 points; S&P 500 gained 0.57% to 4,296.12 while Nasdaq Composite climbed 1.29% to 13,004.85.

Asian Indices

 Asia Pacific equities traded up in general during the early session. However, market participants continue to figure out the risks emanating from China’s latest COVID-19 outbreak and aggressive U.S. Federal Reserve monetary-policy tightening.

China’s Shanghai Composite was up 0.37% while the Shenzhen Component fell 0.57%. Hong Kong’s Hang Seng Index rose 0.93% while the Australian ASX 200 slid 1.97%, with markets re-opening after a holiday.

The Bank of Japan will hand down its monetary policy decision on Thursday. However, Japan’s Nikkei 225 gained 0.45%

Metals

Gold rose on Tuesday as the dollar edged lower, with palladium also rebounding after concerns over reduced demand due to COVID lockdowns in China drove prices to a near one-month low in the previous session.

Spot gold was up 0.3% at $1,903.97 per ounce, after hitting its lowest level since March 29 in the previous session. Meanwhile, U.S. gold futures gained 0.4% at $1,903.70.

Spot silver gained 0.8% to $23.79 per ounce, platinum rose 1.1% to $930.87, and palladium advanced 2.8% to $2,203.25.

Crude Oil

Oil prices hopped on Tuesday, settling after a sharp fall of 4% in the earlier session. Meanwhile, worries over China’s fuel demand were soothed by the central bank’s pledge to support an economy hit by renewed COVID-19 curbs. However, market participants believe that phasing out of Russian oil from the market would continue to support prices.

Brent crude futures were up 0.58% at $102.91 a barrel after rising to $103.93 earlier in the session. U.S. West Texas Intermediate contracts were up 0.35% at $98.88 per barrel after rising to $99.82 a barrel in early trade.