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Daily Market Update

Dollar Consolidates Gains as Tensions Ease

April 22, 2024

The United States Dollar consolidated its gains from the last two weeks this morning and is set to continue trading just off its year-to-date highs.

Overview

Volatility in FX markets is back in a big way, reaching last week its highest point in more than 19 months, and the Dollar has been a major beneficiary of such price flux. Geopolitical tensions continue to keep risk aversion at the forefront of traders’ minds. After Israel and Iran exchanged strikes through the last week, a tense weekend managed to avoid further conflict. Iran downplayed Israel’s response to its strikes last weekend, seeking to avoid, apparently, a tit-for-tat escalation of this decades-old conflict, bringing a fragile sense of calm back to markets. Oil and commodity prices retreated a bit, though gold prices remain near their record highs.

Aside from continued tensions in the Middle East, the Federal Reserve is entering its blackout period today before its policy decision, which is due out May 1. Though no change in key interest rate is expected, the US economy’s continued strength will have traders and policymakers alike looking for a shift in the espoused stance from Jerome Powell & Company. Rhetoric from Fed governors has changed substantially since the FOMC’s last meeting in late March, and we do expect to see a further shift toward fewer cuts this year rather than the 75 basis points of easing the dot plot laid out in March. Markets, however, have already shifted their expectations lower, so USD is unlikely to benefit substantially from any change in Powell’s tone unless it is quite substantial.

The week ahead also brings several key data points for release out of the US, including April preliminary PMIs tomorrow and Q1 GDP on Thursday morning. US data has been on a real hot streak through the first quarter of this year, but markets have come to expect releases above expectations. Nevertheless, a GDP reading close to 3% does signal that the Fed’s fight against inflation may not be over.

What to Watch Today…

  • Eurozone April Prelim PMI, Tuesday
  • US April Prelim PMI, Tuesday 8:30 AM
  • US Q1 GDP, Thursday 8:30 AM
  • ɲopen.

View Economic Calendar

EUR ⇓

The Euro has moved a lot throughout the week but has managed to get steady and escape with a bit of a gain thus far before closing. While not full of data, this week did feature indicators showing that inflationary growth has remained around a bit and that confidence surveys show people with a more optimistic outlook, particularly when it comes to the German situation. Purchasing Managers Index figures are out next week as well as Consumer confidence for the Euro-zone. While the world is in chaos, its volatility will increase.

GBP ⇓

The single currency is also underperforming against USD this morning, slipping a quarter of a percent closer to last week’s lows. European equities opened the week’s trading session stronger as markets attempted to regain some positive momentum after sliding last week on Middle East tensions. EURUSD has become the victim this year of divergent central bank expectations, and further downside potential remains for the pair if European PMIs due out tomorrow don’t show some sort of a rebound.

 

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