GBP/USD Weekly
If it does, the next major resistance barrier will be the 1.35 level. After that, then you have to worry about the 1.37 level. Either way, it is a question that someone open-ended still, whether or not we have bounced enough to call this a bit of a bottom. The next couple of weeks will probably determine everything, especially after we get that nonfarm payroll number in January. After that comes out, you typically see the market has turned back into normal liquidity, and therefore you can trust the moves a bit more. What I find particularly interesting about the British pound rally in the way it has, is the fact that almost no other currencies did the same thing. It was not the US dollar story; it was most decidedly a British pound story.
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Stepping into the second full week of May—time is flying this year—attention shifts to US inflation data and the Bank of England’s (BoE) rate decision.Annual US inflation topped at 9.1% in June of 2022 and has since cooled for nine consecutive months. Headline inflation came in at 5.0% in the twelve months to March in the latest release, and economists anticipate the inflation rate may slow to 4.9% in April. In his Press Conference last week, Fed’s Powell stated it would take some time to bring inflation down towards the Fed’s 2% target. Therefore, any surprise shift in the inflation rate this week could increase market volatility and the chances of another rate hike.
The BoE rate decision will be of interest on Thursday—we do have UK growth GDP data a few hours prior though this is unlikely to be the focus of the day—with futures markets pricing in a 25 basis-point increase and approximately one more rate hike before the central bank pauses policy firming. A rate hike on Thursday would mark the central bank’s twelfth consecutive rate increase and 440 basis points of tightening since December 2021.
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Just play the eview buttomNote
US Inflation Data Release to Impact MarketsOn Wednesday, the United States is scheduled to release its consumer price inflation data for April. This report could offer more insight into interest rate changes. It is widely anticipated that the U.S. Federal Reserve will stop increasing rates, and this data could confirm those expectations. Additionally, traders will closely monitor various Chinese economic indicators this week. This includes trade, inflation, lending, and money supply figures for April. This will help market participants evaluate the economic recovery of the world’s second-largest oil consumer. As a result, crude prices may continue to benefit from the upward momentum.
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Recession in the United StatesWill the recession in the US – if it is actually rolling – significantly reduce the demand for oil, which could justify the already falling oil price? Well, on Friday at 2:30 p.m. they showed US labor market data for April: The US unemployment rate drops to 3.4% ( forecast 3.6% ). And: 253,000 new jobs were created in the USA in April ( Forecast + 180,000 ). So the US economy is running more robust than many analysts thought. Does that mean for the oil price? Possibly oil demand will continue to be at a higher level, which the futures market immediately priced in. Since Friday at 2:30 p.m. we have seen an increase in American WTI oil of $ 2.
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GBP FunamentalsThe GBP has experienced a notable rally in recent weeks, positioning it as the top-performing currency among the G10 nations this year. The unexpected success story of the GBP, now dubbed the "King of G10 FX," can be attributed to several factors.
Firstly, the rebound can be attributed to a series of positive UK data releases in recent months, which were influenced by the significant decline in European energy prices and subsequent improvements in commodity terms of trade. Additionally, the persistent UK inflation, combined with reduced post-Brexit tensions between the UK and the EU, as well as diminished risks of another independence referendum, have enhanced the attractiveness of GBP-denominated assets.
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USA: Debt ceiling – Loss of credit insurance costs explodeUSA: Demand for credit default insurance is increasing
The mess has skyrocketed demand for euro-denominated US credit default swaps that are traded the most. These contracts for a default next year were traded on Wednesday at 166 basis points. They reached a record high and exceeded the levels reached during previous unrest over the US debt ceiling in 2011 and 2013.
Trading has picked up momentum due to the peculiarity of the derivatives market, which enables owners to achieve substantial returns in the event of a default. Your payment corresponds to the difference between the market value and the nominal value of the underlying asset – an attractive investment if long-term government bonds are traded particularly cheaply. According to Bloomberg calculations, the potential payout could exceed 2,400.
Emerging markets would be most affected
According to Simon Waever, an analyst at Morgan Stanley, the outstanding net nominal volume of US CDs with $ 5.5 billion is now comparable to many larger emerging markets. Ironically, emerging markets will be most affected by any impact on the overall market.
The anomaly is limited to one-year CDS. Five-year contracts, which are usually more liquid and better reflect the assessment of a country's longer-term credit risk, have also increased in the United States, but are still traded about 100 basis points below the one-year terms. This reverse curve indicates that the risks in the immediate future are considered to be higher than in the longer term.
The CDS price reflects the cost of insurance for a very large loan in a very small insurance market, said Charles Diebel, head of Fixed Income at Mediolanum International Funds
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Why Say Recession at All Given How Much Inflation Has Come Down Already?Because when you dial into the Fed statements over the past several months, they believe anything short of recession will not truly stamp out the flames of inflation. If they just slow down the economy to touch their 2% inflation target, they fear that the remaining embers could reignite higher inflation in the months following.
So, under the heading “Don’t Fight the Fed” probably best that we take them at their word that a recession is coming. And when it is finally on the scene, that is when bears will take charge and stocks will retrace to the previous low of 3,491...and probably lower.
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Friday26.May is the Big Day of this week US Stocks Lack Direction as Investors Eye Debt Ceiling and Inflation report
the yield on the US 10-year Treasury note rebounded from early losses to trade slightly higher at 3.7%, the highest since mid-March, as traders assess the monetary policy outlook and the debt ceiling impasse in the US. On Monday, Fed’s Kashkari said a June rate pause or hike is a close call and St. Louis Fed President Bullard said the Fed may still need to raise rates by another half-point this year. Last Friday, Fed Chair Powell mentioned that because of stress in the banking sector, it might be unnecessary to further raise rates to curb inflation. The likelihood of a pause in the rate hike cycle has been fluctuating, but currently, traders are assigning a 78% probability that the Fed will maintain the rates steady in June. Simultaneously, President Biden is scheduled to meet with House Speaker Kevin McCarthy on Monday to continue negotiations regarding the debt ceiling. This follows an unsuccessful meeting between key negotiators on Friday.
US stocks traded around the flatline on Monday, as investors remain concerned about the sustainability of US government debt. President Biden and House Speaker Kevin McCarthy are set to continue negotiations on the debt ceiling today following a failed meeting on Friday. Treasury Secretary Yellen said on Sunday that the likelihood of the Treasury paying all US bills by June 15th is quite low. Meanwhile, traders continue to follow comments from several Fed officials: Fed’s Kashkari said a June rate pause or hike is a close call and St. Louis Fed President Bullard said the Fed may still need to raise rates by another half-point this year. On the corporate front, shares of Micron Technology fell nearly 4% after China banned some Chinese tech manufacturers from using the company's chips. Stocks of Apple were also down about 1% after Loop Capital downgraded its stock to hold from buy. Meta stocks were also under pressure after the firm has been fined by European regulators.
US futures were around the flatline on Monday, as investors remain concerned about the sustainability of US government debt. President Biden and House Speaker Kevin McCarthy are set to continue negotiations on the debt ceiling today following a failed meeting on Friday. Meanwhile, Treasury Secretary Janet Yellen said on Sunday that the likelihood of the Treasury paying all US bills by June 15th is quite low. On the corporate front, shares of Micron Technology fell more than 4% in premarket trading after China banned some Chinese tech manufacturers from using the company's chips. Stocks of Apple were also down about 1% after Loop Capital downgraded the company’s stock to hold from buy. Meta stocks lost nearly 1% after the firm has been fined a record €1.2 billion by European privacy regulators.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.