There are two dominant issues today. First, the ceasefire in the Middle East continues, but the blockade of Iran is an act of war, and the Strait of Hormuz remains blocked even if there are some reports that a few ships have managed to transit it. July Brent is at new contract highs and June WTI has approached last month’s record high. The higher energy prices and the broader disruption continue to underpin bond yields and have stalled the equity rally. Second, what looks like Powell’s last FOMC meeting (as chair) concludes later today. A hawkish hold is the most likely outcome, but as a consummate professional, Powell is unlikely to emphasize the forward guidance except to note its uncertainty due to the war. There is much interest whether he remains as governor. We would not be surprised if it remains unresolved at the end of the day. The Bank of Canada meets too, but with more economic slack, its hold may be less convincingly hawkish.
In a speech to Congress yesterday, King Charles III urged the US to reject isolationism. This is a common meme, but it rings hollow. After bombing seven countries since the start of the last year, threatening to attack two NATO member, kidnapping the head of Venezuela and the war on Iran, there is nothing about US foreign policy that is “isolationist”. “Unilateralism” is a better description, and it is what has spurred talk that “trust” that underpinned the dollar’s role in the world economy has deteriorated.
Prices
G10
• The euro is mostly trading in a little more than a quarter-of-a-cent range below $1.1720 today. In early North American trading yesterday, the euro found support slightly above the pre-weekend low, which was also near the 200-day moving average, slightly below $1.1680. It recovered a little above $1.1715 as European markets closed. A shelf appears forged around $1.1650 and $1.1670. Options for 1.6 bln euro struck at $1.1650 expire today and 1.25 bln euros at $1.1725 expire tomorrow. The question today is whether it can be sustained through what could be a hawkish hold by the Federal Reserve. The momentum indicators have turned lower from overbought.
• The dollar traded on both sides of Monday’s range against the Japanese yen. It settled firmly but within Monday’s range, which neutralizes the technical signal. Still, the firmness of US rates and the daily momentum indicators suggest the market may challenge the JPY160 area.
• Sterling recovered from a dip below $1.3465 in early North American turnover to reach about $1.3520, which was the low from the Asia Pacific session. It has remained below $1.3530 today, the lower end of a band of resistance extends toward $1.3530-40, with $1.36 a more solid cap. Options for GBP525 mln at $1.3525 expire today and another set for about GBP365 mln at $1.3490 also expires today. A break of the $1.3490 area could see a test on yesterday’s low.
• The US dollar bounced against the Canadian dollar yesterday. It had been sold to a one-month low on Monday, slightly below CAD1.36. It poked above CAD1.3690 yesterday and is probing that area in Europe. Nearby resistance is seen in the CAD1.3700-15 area. Overcoming it could spur a more toward CAD1.3770. With slack in the economy, the Bank of Canada is unlikely to deliver a hawkish of a hold as the Federal Reserve today.
• The Australia dollar consolidated yesterday after reaching $0.7200 on Monday. The firm CPI data keeps the market confident that the Reserve Bank of Australia will lift interest rates next week for the third time this year (~72% chance according to indicative pricing in the futures market). The Aussie appreciated by about 33% against the yen in the past year and near JPY114.70 yesterday is reached its highest level since July 1990. Still driven by energy and minerals, Australia recorded a $30.3 bln trade surplus with Japan last year, compared with $35.3 bln in 2024.
EM
• The Mexican peso settled little changed yesterday. The greenback reached almost MXN17.47, nearly a three-week high. It surrendered its early gains and fell to around MXN17.38 near midday in NY and steadied. The peso looks vulnerable and we anticipate the dollar will rise toward MXN17.5250 in the near term.
• The yuan eased yesterday to a two-week low. The greenback rose to nearly CNH6.8430. It settled above the 20-day moving average (~CNH6.8385) for the first time since late March. The dollar is trading inside yesterday’s range today. There may be initial scope for the US dollar to rise toward CNH6.8500-CNH6.8550. The PBOC set the dollar’s fix higher for the second consecutive session (CNY6.8608 vs. CNY6.8589).
• The Indian rupee fell to its lowest level in a month today. The implications of the oil shock aggravate an already precarious position. Dollar demand by importers was noted, while exporters are holding on to their hard currency. The dollar rose to almost INR94.8540 today as it draws closer to the record high seen at the end of March near INMR95.1250.
Other Markets
• Asia Pacific equities were mixed, and Japan’s markets were closed for a national holiday. Aside from Taiwan and Australia, most of the large bourses rallied. Europe’s Stoxx 600 is off for the fourth consecutive session and seven of the past eight. US index futures are narrowly mixed.
• Benchmark 10-year yields are firm in 2-3 bp higher in Europe and the 10-year US Treasury yield is two basis points higher to approach 4.37%.
• Gold set the high this month on April 17, near $4890. Yesterday, it reached $4555. The turning of the momentum indicators and the five-day moving average has fallen below the 20-day moving average, the yellow metal looks heavy. It recorded a new marginal low for the month today, slightly below $4552. The story is similar with silver. It set the month’s high on April 17 slightly above $83. Yesterday, it fell to almost $72. It is holding above yesterday’s low, so far today. The momentum indicators have turned down, and the five-day moving average has fallen below the 20-day moving average.
• June WTI posted the contract high settlement yesterday, a whisker below $100, having reached $101.85 on an intraday basis. That was the highest since on an intraday basis since March 9, when it reached almost $104.35. It is bid today and has reached about $103.80. After rising 14% last week, June WTI is almost 9.5% this week. Over the past seven sessions, coming into today, June WTI rallied 24% and July Brent rose nearly 23%. One of the reasons UAE is leaving OPEC is so that it can boost output (maybe from around 3 mln bpd to 5 mln).
Data
• While the US reports the March goods trade balance, housing starts/permits and durable goods orders, there is one overall focus: the FOMC meeting, which looks likely to be the last one Powell chairs. Warsh will likely be confirmed today to succeed Powell. For almost the past 40 years there has been great continuity at the Federal Reserve. First, there was the 18 years of Greenspan, and almost 19 years of Bernanke, Yellen, and Powell era, which saw new challenges and policy/communication response-including a formal inflation target, Summary of Economic Projections, and the use of its balance sheet. Warsh is critical of these developments. Powell will likely be asked about his intentions, given his term as governor continues through January 2028. The press conference is not the forum I would expect Powell to share his decision for the first time. The press conference is not about him but FOMC’s decision.
• The outcome of the Bank of Canada’s meeting will be known several hours before the Fed’s decision. There is practically no chance of a move by the Bank of Canada. Before the Middle East War began, the swaps market had about 45% chance of a cut this year priced. At the peak on March 20, three hikes were fully discounted plus a little more. Now, the swaps market has one hike priced and about a 1-in-4 chance of a second. Canada’s two-year yield is near 2.84%, up about 45 bp since the war began. Although Canada may be experiencing a positive terms of trade shock, the economy still appears fragile after contracting in Q4 25 and risks to the USMCA loom on the horizon. This coupled with the slack in the economy warns the market may be too aggressive.
• The eurozone confidence surveys are not so interesting and the softness anticipated. Germany and Spain reported April CPI figures. German states’ reports point to a 0.8% month-over-month rise, which will lift the national figure to 3.1% from 2.8% on the EU harmonized methodology. Spain reported harmonized measure of April CPI ticked up to 3.5% from 3.4% year-over-year in April. Tomorrow pulls it all together; with the preliminary aggregate April CPI (~1% month-over-month and 3.0% year-over-year from 2.6%). The core may be flattish around 2.3%. Tomorrow also sees the first estimate of Q1 26 GDP (~0.2% quarter-over-quarter, the same as in Q4 25). And shortly thereafter is the conclusion of the ECB’s meeting and President Lagarde’s press conference. The swaps market is pricing in nearly three hikes this year.
• The BOE meets tomorrow. There is little prospect for a change in rates. Before the war, the swap market was discounting two rate cuts this year, and it its peak on March 20, three hikes and about a 40% chance of a third was priced. The pendulum swung back to less than one hike by April 17. However, a series of stronger than expected data beginning with the February GDP (0.5%), drop in unemployment (4.9% vs. 5.2%), and a rebound in the April preliminary PMI have fanned speculation of a more aggressive BOE trajectory. The swaps market is now discounting two hikes and about a 30% chance of a third this year.
• Australia’s CPI rose 1.4% in Q1 after a 0.6% increase in Q4 25. The trimmed mean measure rose by 0.8% for a 3.5% year-over-year pace. The monthly CPI surged 1.1% in March, lifting the year-over-year rate to 4.6%. The trimmed mean was steady at 3.4%.
Reviewed by Marc Chandler
on
April 29, 2026
Rating:
