Overview: The foreign exchange market is quiet. The dollar is mostly little changed against the G10 currencies, mostly in the ranges that have been carved in recent days. The dollar-bloc currencies are mostly flat to firmer. The others are softer, led by the yen's almost 0.5% loss and sterling's 0.35% decline. Among emerging market currencies, those from the Asia Pacific are mostly steady to higher, while central European currencies weaker, with the euro perhaps acting as a drag, even though the eurozone Q1 GDP of 0.4% was stronger than expected and likely exceeded the US figure, which will be reported shortly. The PBOC set the dollar's reference rate lower for the fifth consecutive session ahead of the extended May Day holiday. Late yesterday, President Trump modified the auto tariffs to exclude the steel and aluminum tariffs being added to the 25% levy on autos and gave some reprieve for imported parts used for domestically made autos.
Asia Pacific equities mostly rose today but China (and South Korea) struggled. Europe's Stoxx 600 is advancing for the seventh consecutive session, while US index futures are soft. Benchmark 10-year yields are 3-4 bp lower in Europe. The 10-year US Treasury yield is about a basis point lower at 4.16%. It settled last week slightly above 4.23%. Gold is lower for the second consecutive session and is approaching Monday's low, nearly $3268. June WTI is lower for the third consecutive session. It is recovering in Europe after testing the $59.20 area, its lowest level since April 11.
USD: The Dollar Index continues to consolidate in a roughly 98.85-100.00 range. Indeed, this week's range is even narrower. It was set Monday, about 98.90-99.85. The tension remains between the momentum indicators, which have turned up and what we expect to be the beginning of softer real sector data. Today is an important day for US data. The soft survey data will likely be reflected in real sector data. The ADP is expected to show slower private sector job growth (~115k vs 155k in March) and the first estimate of Q1 GDP will show the economy practically stagnated at best ahead of the 10% tariffs hitting everyone earlier this month. Part of the challenge is that surge in US gold imports which if for financial purposes rather than say jewelry is not counted as an import of goods. Much of the gold seems to be financial gold sent to the US to avoid tariffs. The Atlanta Fed's GDP tracker warns that even when the adjustment is made for financial gold, the world's largest economy likely contracted (-0.4%). Final sales to domestic private parties, which excludes trade, inventories, and government may offer a cleaner read of the underlying economy. It appears to be tracking around 1.4%, which is about half the pace seen in Q4 24.
EURO: The euro continues to consolidate within last Wednesday's range (~$1.1310-$1.1440). The momentum indicators are slowly correcting from overbought conditions in this sideways movement. Technically, the risk still seems to be on the downside. So far, today, the euro has been confined to about half-of-a-cent below $1.14. The three largest eurozone economies reported Q1 GDP estimates today. France grew by 0.1%, Germany by 0.2% and Italy 0.3%. The aggregate estimate was 0.4%, twice the Q4 24 pace. The three also reported April CPI figures. The German states reports are consistent with a 0.4% rise on the national level for a 2.1% year-over-year pace. France's CPI rose 0.6% in April for a 0.8% year-over-year rate, while Italy's 0.8% month-over-month increase translates into 2.1% year-over-year increase. The aggregate preliminary CPI will be reported after the May Day holiday on May 2. The headline rate is expected to tick down to 2.1% (from 2.2%), while the core rate may tick up to 2.5% (from 2.4%).
CNY: The dollar found support yesterday near CNH7.2560 and recovered to about CNH7.2750 before straddling CNH7.27 during most of the North American session. It is trading within yesterday's range today despite the weak PMI. For the fifth consecutive session, the PBOC set the dollar's reference rate lower (CNY7.2014 vs CNY7.2029 yesterday). The lower fix will limit the dollar's upside/yuan's downside in the extended holiday that begin tomorrow. China's PMI showed the manufacturing PMI falling back below the 50 boom/bust level for the first time since January (49.0 vs. 50.5). As one would expect given the US tariffs, the non-manufacturing sector fared better but still slowed marginally (50.4 vs. 50.8). The composite stands at 50.2, down from 51.4. The key issue for Beijing (and the world) is how it will make up for the loss of the US direct and indirect demand. To what extent will it shift its exports to other countries, which in turn risks a backlash? How much will it boost domestic demand? If consumption rises as fast as investment, as it has, the proportion of consumption of GDP remains the same, even though in absolute numbers domestic consumption is increasing near the fastest pace among large countries.
JPY: The dollar continues to chop sideways against the yen. It has mostly remained inside the JPY141.50-JPY144.00 range for the past five sessions. It is trading in a JPY142.15-JPY143.15 range today. The 20-day moving average, which the dollar has not traded above since April 3 is found near JPY143.75, and Monday's high was about JPY143.90. The momentum indicators still suggest the more impulsive move will be to the upside. The yen is the weakest of the G10 currencies today following its disappointing economic news. It reported larger than expected declines in both March industrial production (-1.1% vs 0.4% expected) and retail sales (-1.1% vs. -0.7% expected). The weakness of the Japanese economy and the uncertainty surrounding US tariffs will keep the Bank of Japan on the sidelines tomorrow. The median forecast in Bloomberg's survey puts Q1 GDP at 0.3% (annualized) down from 2.2% in Q4 24. This growth would match what is expected to be reported shortly by the US, but Japan's CPI (though measured differently) is half again as high as the US (3.6% vs. 2.4%). The swaps market has almost 15 bp of tightening this year discounted, down from almost 40 bp in late March.
GBP: Sterling consolidated after setting a three-year high on Monday. It has pulled back to about $1.3355 today. It has approached the initial consolidative target near $1.3340. A break could see another cent decline. Nationwide house price index unexpectedly fell by 0.6% in April, the biggest decline in nearly two years, as the tax break for buyers expired and consumer confidence has waned. The 3.4% year-over-year increase is slightly slower than the S&P CoreLogic measure of US home price increase (3.87%) reported yesterday. Tomorrow, the UK reports consumer credit, mortgage-lending, and money supply, which also tend not to capture the imagination of investors. The local elections on May Day will likely see the Tories continue to be punished. Some polls show the Reform Party drawing greater support than Labour. Of the 1600+ local council seats, one poll had the Reform Party winning as many as 700. It could also win the one byelection being held and two of the four mayor posts being contested.
CAD: For a week now, the greenback has been mostly confined to the CAD1.38-handle. It is in a narrow range, slightly more than CAD1.3820-CAD1.3845. The momentum indicators still suggest the break will be on the upside. Initial potential may extend toward CAD1.40. February GDP is expected to be flat after a 0.4% expansion. One needs to exercise caution in extrapolating from the monthly figures to the quarterly GDP. In Q4 24, the cumulative monthly GDP was 0.3%, while quarterly read was 2.6% annualized. The median forecast in Bloomberg's survey anticipates growth slowing to an annualized rate of 1.8%.
AUD: After reaching its highest level since early last December (~$0.6450), the Australian dollar reversed low and fell to around $0.6375. It did not take out Monday's low (slightly below $0.6370), but it settled poorly. Still, today, it is in about a fifth-of-a-cent range on both sides of $0.6400. A break of the $0.6350 area would bolster the chances that correction is at hand. The initial target may be the $0.6290-$0.6300 area, but near-term potential could extend toward $0.6250. In Q1 25, Australia's CPI rose by 0.9%, which given the base effect, allowed the year-over-year pace to remain steady at 2.4%. The underlying measures eased. The trimmed mean slowed to 2.9% from 3.3% and the weighted median moderated to 3.0% from 3.5%. They remain elevated but the direction will be welcomed by the central bank, which appears on the verge of accelerating its easing cycle. The futures market has nearly a quarter-point cut discounted at the next three meetings beginning in May and has about 115 bp of easing priced in before the end of the year.
MXN: The peso remains resilient. The greenback is chopping in a MXN19.47-MXN19.69 in the wide and it is trading quietly today in a narrow range. mostly between MXN19.54 and MXN19.5865. Mexico reports Q1 25 GDP today. As with several of the other currency pairs, the momentum indicators are becoming more constructive for the US dollar, but it has not shown much traction. Yet because of the sizeable carry, the peso longs can weather the sideways movement. Still, a move above MXN19.75 might begin spurring some position adjustment. Bloomberg conducted two surveys. The median in the monthly survey (ECFC) warns of the second consecutive quarterly contraction (-0.3% after -0.6% in Q424). The median in the weekly survey sees 0.1% growth. The weak growth profile while inflation is hovering just inside the 3% +/- 1% target range, and the peso firm is understood to still allow Banxico to cut rates by another 50 bp when it meets next month. That would bring the target rate to 8.50%. The swaps market shows it at nearly 7.25% in 12 months.
Reviewed by Marc Chandler
on
April 30, 2025
Rating:
