DOLLAR GAINS AS INVESTORS WAIT FOR FED AND JOBS DATA
The dollar and the treasury yields continued the upward momentum today as traders waited for key economic data later this week. The dollar index which compared the dollar against a basket of currencies, and the 10-year treasury yields gained by 0.40%. Traders are waiting for key data to be released on Wednesday when ADP will release the employment change data. On the same day, the Fed will release its interest rate decision and provide forward guidance on future rate hikes. On Friday, we will receive the official employment data from the labour department. Today, data showed that personal income in the country rose by 0.3%, which was lower than the expected 0.4%.
EU finance ministers started a meeting today to deliberate among others, ways to respond to trade tariffs from the United States. The meeting came a few days after German and France leaders met with their US counterpart to iron out issues on trade and Iran. It was widely reported that the two meetings did not produce any meaningful concessions from the US administration. Meanwhile, in Germany, retail sales declined by negative 0.6% in March. This was far off from the 0.8% traders were expecting. On an annual basis, the retail sales rose by 1.3%, which was slightly higher than what investors were expecting. Italian CPI rose by 0.1% in March and at an annual rate of 0.5%. This was lower than the estimated 0.2% and 0.7% respectively.
The pound fell after a statement from a senior EU negotiator. In a statement, Michel Barnier, the senior EU negotiator said that the UK must soften its hard lines, especially on the Irish border. Speaking to reporters in Dublin, he said that the talks risked collapsing if the UK continued to maintain its hardline positions on the Irish border. The same sentiment was repeated by Irish prime minister who asked the UK to change its negotiating tactics. Three options have been suggested. Option A allows Northern Ireland to remain in the customs union while option B will call for an invisible border that will use technology to scan vehicles. The last option is the hybrid model that lets the UK remain in the customs union while allowing it to trade with other countries outside the bloc.
The EUR/USD pair continued to move lower following last week’s ’unproductive’ meetings between the US and EU leaders. The downward trend came as investors waited for an important Fed meeting and important jobs numbers. From the EU side, this week, we will receive the GDP numbers on Wednesday, and inflation data on Thursday. If the downward momentum continues, the pair could cross the 1.2052 level, which is the lowest level since early January.
The cable fell as the Northern Ireland issue increased chances of a hard Brexit. As shown below, the pair is closing in on the 1.3672, which is an important support level. A move further down will see the pair try to test the important support level of 1.3023. This will happen if the Fed’s statement will include chances of more rate hikes and if jobs numbers show continued tightening.
Gold fell against the dollar to the lowest level since late March. An ounce of gold is now trading at $1313, which is the lowest level since March 20. The weakness on gold is attributed to the strengthening dollar which has gained by 3.20% in April. It is also attributed to the flattening yield curve. If the downward momentum continues, the pair could test the important level of $1,300.