The greenback's losses extended into early Friday, with the dollar index trading at a one-year low below 101. During the North American session, the US is to release data on import and export price indices, March retail sales and industrial production. Before the weekend, the University of Michigan will release its preliminary consumer sentiment index for April.
U. S. data on Thursday showed producer prices fell sharply in March, following Wednesday's soft inflation release, putting fresh selling pressure on the greenback. In addition, the report released by the US Department of Labor showed that the number of initial jobless claims for the week ended April 8 rose to 239,000 from the previous value of 228,000. The U.S. dollar index extended losses late on Thursday as Wall Street's main indexes gathered momentum and closed in solid gains. However, in early European trading on Friday, U.S. stock futures fell, indicating a cautious market sentiment.
S&P 500 futures posted modest losses during the Asian session. U.S. stocks were heavily bought on Thursday after the release of the U.S. PPI report, as it sparked reconsideration of expectations for another rate hike by the Federal Reserve at its May monetary policy meeting. Overall market sentiment was extremely positive as hopes grew for the Federal Reserve (FED) to adjust its neutral policy.
Beyond that, lower gasoline prices in March boosted expectations that S&P 500 companies will report strong quarterly results. With lower-than-average gas costs, businesses must keep their input costs low, which should boost operating margins.
Demand for U.S. government bonds improved slightly on hopes of lower inflation expectations among U.S. consumers. The 10-year U.S. Treasury yield has slipped below 3.44%.
Elsewhere, Bloomberg reported that U.S. commercial banks reduced borrowing from the Federal Reserve's two backstop lending facilities for the fourth week in a row, as liquidity constraints continued to ease following the collapse of Silicon Valley Bank last month. The synergistic effect of tighter credit conditions, weaker U.S. consumer price index (CPI) and PPI, and a looser labor market will also force Fed Chairman Jerome Powell to dial back rate cuts.
Traders of fed funds futures are pricing that the Fed's benchmark rate will peak at 5.01% in June from 4.830% now, before falling back to 4.34% in December.
EUR/USD extended its intraday rally above 1.1000 on Thursday and broke through 1.1070 early Friday to hit its highest level since March 2022.
The major currency pair is expected to continue its run above the 1.1100 round-figure mark as the US Dollar Index struggles to defend its downside momentum. The U.S. dollar index remained in bearish hands on Thursday, as a softer-than-expected U.S. producer price index (PPI) report reinforced the need for an earlier pause in the policy tightening cycle than previously expected.
The euro was boosted by the relatively more hawkish European Central Bank, which is expected to continue raising interest rates to tackle inflation.
Ben Laidler, global market strategist at eToro, said: "We have seen a dramatic move in interest rate spreads in favor of the euro. Lower U.S. inflation and rising recession risks have combined to drive expectations for three Fed rate cuts this year, while the still hawkish The European Central Bank raised interest rates further."
Bostjan Vasle, member of the ECB Governing Council and President of the Central Bank of Slovenia, said on Thursday that the ECB needs to keep raising interest rates given that underlying inflation remains stubbornly high, and that its next move could be a 25 basis point or 50 basis point hike. basis points.
Bundesbank President and European Central Bank Governing Council Nagel also said that the core inflation rate in the euro zone will start to improve in the next few months, but the ECB's monetary policy still has some way to go.
With no major data releases from the Eurozone today, the dollar could continue to drive the pair ahead of the weekend. EUR/USD is expected to continue to end the week higher. This would be the seventh straight weekly positive for the pair.
GBP/USD closed higher for the third straight session on Thursday and held ground in Asia on Friday. The pair is now above Thursday's closing level of 1.2520. The outlook for the UK economy is expected to be a major factor in favor of the pound in the near future.
Paul Dales, chief UK economist at Capital Economics, said in a research report that the UK's GDP rate was 0% in February, indicating that economic growth has stagnated but not contracted, increasing the need for the Bank of England to continue raising interest rates to further weaken the economy. , the possibility of reducing inflation to the 2% target.
Morgan Stanley UK economist Bruna Skarica said in a report that the UK economy was flat in February and grew more than previously expected in January, which means the UK is unlikely to fall into a technical recession in the first half of the year. Despite this, she said, the UK economy will still avoid recession by a very narrow margin and has effectively stagnated for a year.
However, GBP's performance is still lackluster compared to other risk currencies, and GBP/USD's upward trend is still generally blocked. The reason could be weak monthly UK Gross Domestic Product (GDP) (February) data due on Thursday.
The monthly rate of UK GDP remained stagnant, while the market expected a growth of 0.1%. Industrial production came in at -3.1% on the year, against expectations for -3.7%. The manufacturing production index recorded -2.4%. Manufacturing production contracted less than expected -4.7%.
The hourly chart shows that after GBP/USD tested the April 4 high horizontal resistance at 1.2525, volatility narrowed significantly. There is a position adjustment movement in GBP/USD between institutional and retail investors. Since the overall trend remains bullish, a breakout of the consolidation to the upside is highly likely.
USD/JPY fell on Thursday as the greenback traded broadly lower. The yield on the benchmark 10-year U.S. Treasury note held steady above 3.40%. USD/JPY, however, remained calm around 132.50 on Friday.
The looming recession risk favors the yen's relative safe-haven status and further helps limit USD/JPY upside. Still, the dovish near-term outlook from the Bank of Japan (BoJ) is preventing bearish traders from placing fresh bets and lending support to USD/JPY.
Market participants will now turn their attention to the U.S. economic calendar, with monthly retail sales data and the preliminary Michigan consumer sentiment index to be released during the North American morning session. This, along with broader risk sentiment, could provide some impetus to USD/JPY and allow traders to seize short-term opportunities.
Gold prices in London rose sharply on Thursday and approached $2,050, and the all-time high of $2,070 recorded in March 2022. Spot gold appears to be entering a consolidation phase around $2,040.
Bitcoin broke through the $30,000 resistance and continued to rise towards $31,000 on Friday. Ethereum rose more than 5 percent and broke above $2,000 for the first time since June. Ethereum maintained its upward momentum and is currently up another 5% to $2,120.
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