ECB President struck a dovish tone-the central bank might need to cut its growth outlook

• Fed Chair’s comments on Thursday seemed to back a half a percentage point tightening
• Powell on Thursday said a half-point interest rate increase "will be on the table"
• Sterling fell against the dollar to its lowest since November 2020 after-sales data

Forex market

The dollar surged to a more than two-year high on Friday, continuing to draw support from Federal Reserve Chair Jerome Powell's comments on Thursday that seemed to back a half a percentage point tightening at next month's policy meeting, as well as his remarks on likely consecutive rate hikes this year. 

The dollar index, a gauge of the greenback's value against six major currencies, hit 101.33, the highest since March 2020, It was last up 0.6% at 101.16, the largest daily percentage gain since mid-March. So far this year, the dollar index has gained 5.7%. The macro fundamentals are still pointing to a higher dollar as short-term Treasury yields vs comparable maturity on sovereign yields are positive and inflation is high globally. 

Economic Calendar

These macro drivers work well until the dollar reaches a level where economic growth is significantly impaired and the creditworthiness of U.S. government debt is suspect. Powell on Thursday said a half-point interest rate increase "will be on the table" when U.S. central bank meets on May 3-4. Fed funds futures have started to price in a third 50-basis-point hike in July, after the same increase in May and June, and nearly 250 basis points of cumulative increases in 2022. 

Even if the Fed does back-to-back-to-back 50 basis-point hikes, that's still at a rate that is at the bottom end or below neutral. They likely don't feel that it's excessive tightening because even after these hikes are put in place, the policy will still be loose, still accommodative. Across the Atlantic, the euro fell 0.4% to $1.0792, after European Central Bank officials sent mixed policy signals. 

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ECB President Christine Lagarde struck a dovish tone on Thursday by saying the central bank might need to cut its growth outlook a day after ECB dove Luis de Guindos joined some policymakers in calling for an early end of the bank's asset-buying scheme coupled with a rate rise in July. Investors are also waiting for Sunday's run-off of the French presidential elections between incumbent Emmanuel Macron and far-right challenger Marine Le Pen, with the latest polls showing Macron winning with 55% of the votes. Le Pen's win could provoke tensions with European allies and weigh on the euro. Sterling fell against the dollar to its lowest since November 2020 after-sales data and recent Bank of England comments signaled a possible slowdown in the expected rate hike path.

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Euro-EUR

The single currency failed to gain a boost from pro-EU centrist Emmanuel Macron's re-election as France's president and as investors' fears about global growth outweighed their relief about far-right candidate Marine Le Pen's defeat. With 97% of votes counted, Macron was on course for a solid 57.4% of the vote, interior ministry figures showed. Overall, the EUR/USD traded with a low of 1.0769 and a high of 1.0850 before closing the day around 1.0797 in the New York session.

Japanese Yen-JPY

The Japanese Yen fell as the dollar surged to a more than two-year high on Friday, continuing to draw support from Federal Reserve Chair Jerome Powell's comments on Thursday that seemed to back a half a percentage point tightening at next month's policy meeting, as well as his remarks on likely consecutive rate hikes this year. Overall, the USD/JPY traded with a low of 127.71 and a high of 129.09 before closing the day around 128.53 in the U.S session.

British Pound-GBP

The British Pound traded lower as Britain's economy is losing steam as households face a tightening cost-of-living squeeze, according to data published on Friday which showed sliding retail sales and consumer confidence approaching all-time lows. The pound slid by more than a cent for the first time since November 2020. Overall, the GBP/USD traded with a low of 1.2820 and a high of 1.3033 before closing the day at 1.2830 in the New York session.

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Canadian Dollar-CAD

The Canadian Dollar weakened to a five-week low against its US counterpart on Friday as oil prices dropped and the greenback broadly climbed, with the loonie sliding despite the Bank of Canada opening the door to larger interest rate hikes. The price of oil, one of Canada’s major exports, was burdened by the prospect of weaker global growth. Overall, USD/CAD traded with a low of 1.2565 and a high of 1.2723 before closing the day at 1.2708 in the New York session.

Australian Dollar-AUD

The Australian Dollar was back on the defensive on Friday after hawkish comments from U.S policymakers spooked equity markets and soured risk appetites. Meanwhile, Fed officials were confirming the likelihood of a 50-basis point rate rise in May and possibly moving by 75 basis points if needed. The hawkishness spilled over into local markets which narrowed the odds RBA could lift its 0.1% cash rate. Overall, AUD/USD traded with a low of 0.7358 and a high of 0.7416 before closing the day at 0.7410 in the New York session.

Trade U.S and Australian Stocks

Euro-Yen EUR/JPY

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also issuing a bullish stance. The Relative Strength Index is above 61 and lies above the neutral zone. In general, the pair has lost 0.19%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 60 reading and lies above the neutral zone. On the whole, the pair has lost 1.38%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 76 reading and lies above the neutral region. In general, the pair has lost 1.62%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 53 and lies below the neutral region. Overall, the pair has gained 1.19%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 45 and lies below the neutral region. In general, the pair has lost 1.15%.

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