The Weekly Wrap – FED Chair Powell Drives the Dollar Spot Index to 101

The Stats

It was a busy week on the economic calendar for the week ending April-22, 2022.

A total of 57 stats were monitored, following 59 stats in the week prior.

Of the 57 stats, 31 beat forecasts, with 25 economic indicators falling short of forecasts. One stat was in line with forecasts.

Looking at the numbers, 33 of the stats reflected an upward trend. Of the remaining 24 stats, all 24 stats were weaker.

Out of the U.S

It was a quiet start to the week, with the markets needing to wait until Thursday for the key numbers.

It was a mixed set of numbers. Jobless claims fell from 186k to 184k in the week ending April 15. The Philly Fed Manufacturing Index disappointed, however, falling from 27.4 to 17.6.

On Friday, prelim private sector PMIs for April also drew interest.

The Manufacturing PMI increased from 58.8 to 59.7, while the Services PMI declined from 58.0 to 54.7.

The mixed set of numbers came amidst some hawkish Fed Chair Powell chatter.

On Thursday, Fed Chair Powell spoke at the Annual Economic Policy Conference National Association for Business Economics.

There were two key takeaways from the Powell speech. Firstly, the prospect of a fifty-basis point rate hike.

Discussing restoring price stability, Powell said,

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or in meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”

Secondly, Powell talked of the challenges of bringing down inflation without bringing down the economy.

Concerning growth, Powell said,

“I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context – very little is straightforward in the current context. My colleagues and I will do our very best to succeed in this challenging task.”

The combination of a more rapid move to policy-neutral and possible beyond and the threat of recession weighed on riskier assets.

In the week ending April 22, 2022, the Dollar Spot Index gained 0.72% to end the week at 101.22. In the week prior, the Index rose by 0.71% to 100.50.

Out of the UK

Retail sales and private sector PMIs for April were the key stats of the week. The stats were Pound negative.

Core retail sales slid by 1.1% in March, with retail sales tumbling by 1.4%.

According to prelim April figures, the services PMI declined from 62.6 to 58.3, while the manufacturing PMI rose from 55.2 to 55.3.

In the week, the Pound slid by 1.69% to end the week at $1.2839. In the week prior, the Pound rose by 0.27% to $1.3060.

The FTSE100 ended the week down 1.24%, reversing a 0.68% loss from the previous week.

Out of the Eurozone

Early in the week, the Eurozone economy was in the spotlight.

The stats were EUR positive, though not good enough to counter hawkish Fed Chair Powell chatter from later in  the week.

In February, industrial production rose by 0.7%, reversing a 0.7% decline from January. Trade data was also EUR positive, with the trade deficit narrowing from €27.3bn to €7.6bn.

Consumer confidence was also on the rise, despite the ongoing war in Ukraine.

At the end of the week, prelim private sector PMIs for April disappointed, however. Germany’s manufacturing PMI declined from 56.9 to 54.1, leaving the Eurozone Manufacturing PMI down from 56.5 to a 15-month low of 55.3.

Service sector activity accelerated due to easing COVID-19 restrictions, supporting a rise in the composite PMI from 54.9 to 55.8.

For the week, the EUR fell by 0.62% to $1.0810. In the previous week, the EUR fell by 0.62% to $1.0810.

In the week, the EuroStoxx600 slid by 1.42%, with the CAC40 and the DAX seeing losses of 0.12% and 0.15%, respectively.

For the Loonie

The market focus was on inflation and retail sales during the week.

The stats were Loonie positive, with Canada’s annual rate of core inflation accelerating from 4.8% to 5.5%. The jump supported the market expectation of more BoC rate hikes in the months ahead.

Retail sales rose by a further 0.10% in February, with core retail sales increasing by 2.10%.

In the week ending April-22, the Loonie fell by 0.79 to C$1.2710 against the Greenback. In the week prior, the Loonie fell by 0.30% to C$1.2610.

Elsewhere

It was another bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar tumbled by 2.04% to $0.7244, with the Kiwi Dollar sliding by 1.85% to end the week at $0.6639.

For the Aussie Dollar

There were no material stats to provide the Aussie Dollar with direction.

The RBA meeting minutes failed to deliver support despite a shift in sentiment towards interest rates. Monetary policy divergence remained firmly in favor of the Greenback.

For the Kiwi Dollar

It was a quiet week, with economic data limited to Q1 inflation figures. The stats were Kiwi Dollar positive, with consumer prices rising by a further 1.8% in the quarter. Year-on-year, the annual rate of inflation held steady at 6.9%, which was also Kiwi Dollar positive.

The numbers were not enough to prevent a slide, however, with the Fed likely to take a far more aggressive rate path.

For the Japanese Yen

Economic data included industrial production, trade, and private sector PMI numbers.

Positive stats were not enough to prevent a Yen return to ¥128 against the Dollar.

In February, industrial production rose by 2%, with Japan’s trade deficit narrowing from ¥669.7bn to ¥412.4bn.

According to April prelim figures, the manufacturing PMI slipped from 54.1 to 53.4, while the services PMI increased from 49.4 to 50.5.

The Japanese Yen slid by 1.61% to end the week at ¥128.50 against the Dollar. In the week prior, the Yen ended the week down by 1.71% to ¥126.46.

Out of China

It was a particularly busy week, with Q1 GDP, industrial production, and fixed asset investment figures in focus.

In Q1, the economy grew by 1.3%, which was softer than 1.5% in Q2. Year-on-year, the economy grew by 4.8%, picking up from 4.0% in the quarter prior.

The downward trend in industrial production continued, with production up by 5.0% year-on-year. In February, industrial production increased by 7.5%.

Also negative for the markets were more stringent lockdown measures to curb the spread of the coronavirus.

In the week ending April-22, the Chinese Yuan tumbled by 2.04% to CNY6.5014. The Yuan fell by 0.10% to CNY6.3715 in the week prior.

The Hang Seng Index ended the week down 4.09%, with the CSI300 sliding by 4.19%.