Labor steady, Greenback up for the week

The U.S. Dollar is about to close the week 1.0% stronger following a very hectic week that finally delivered the much-awaited interest rate hike by the Federal Reserve.

Overview

In choosing a contractionary path not witnessed since 2000, the Fed caused trouble for equity markets, which remain uncertain about the future with guaranteed higher borrowing costs to come in the midst of global supply issues. Economists are also wondering just how successful can the measures by central banks be in slowing down inflationary pressures.

Overall, there seems to be almost a resignation that growth will soften, and that stagflation is now a major risk. With the Bank of England already seeing a shrinking economy a year from now, it helps the buck keep building value off of risk-aversion.

Today’s official labor numbers revealed higher figures than expected for Non-Farm Payrolls at 428K vs 380K expected, however, Average Hourly Earnings failed to impress expanding just 0.3% for April. Indeed, it is also a voiced concern from the Fed that wages are not growing at a sustainable pace. We see the buck vulnerable and possibly at a peak.

The war has demonstrated that it will have a longer-term impact, China’s citizens seem fed up with strict anti-COVID measures, and Europe is working diligently to find energy solutions that exclude Russia.

What to Watch Today…

No major economic events are scheduled for today

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EUR

The Euro actually came out a winner for the week with a gain of over half a percent from where it started Monday. After reaching its weakest level in five years, the shared currency has attempted a few comebacks that have given fruit to some merited appreciation.

As bullish as we have been on Euro, we admit the conflict and the chaos that has come with it have affected our forecast, but we remain focused on the potential for EUR to recover in a big way if peace and commercial stability are reached.

GBP

Sterling remains subdued after falling to its weakest point since June 2020 based on the negative reaction to the Bank of England’s post-decision press event. While tightening occurred and another 25-basis-points added to the benchmark rate, the BOE’s admission to a bleak future for growth crushed market spirit.

As Brexit-related woes remain, prices are feared to remain elevated and likely face more headwinds with the Eastern European scramble. We see Sterling at the bottom, but the situation on the other side of the pond seems delicate and bodes poorly for the U.K. short-term.

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