Forex Fundamental News Facts for 24th April, 2024

Forex Fundamental News Facts for 24th April, 2024

[Quick Facts]

1. Rising Eurozone services PMI is unlikely to change a June rate cut.
   2. Strong British PMI data may keep the Bank of England cautious.
   3. Japan is “very close” to currency intervention.
   4. Germany’s economy expands again.
   5. Bank of England’s Policy Dilemma Amid ECB and Fed’s Rate Decisions.
   6. Survey Divergence Hits the Dollar.
   7. World’s Largest Wealth Fund Says There’s ‘Clearly A Lot Of Froth’ In The Tech Sector Right Now.
   8. Bitcoin Likely To Hit $100,000 Mark In 2024, Experts Say.

[News Details]

Eurozone’s Rising Services PMI and Its Implications:
The Eurozone’s services PMI for April showed a significant improvement, reaching a record high of 52.9 since June 2023. This marks the third month in a row that the index has surpassed 50, pushing the composite PMI to an 11-month high of 51.4. The revival of the Eurozone’s services sector has encouraged firms to pass on cost increases to consumers. However, most market experts predict that the European Central Bank (ECB) will proceed with a rate cut in June, despite the rise in service sector prices.
The second quarter has started well for the Eurozone, primarily driven by the services sector. The Eurozone’s GDP is projected to grow by 0.3% in Q2. The PMI data will be a crucial factor in determining the ECB’s readiness to cut rates. The accelerated price increases in the services sector could be attributed to not only higher oil prices but also increased wages. While a rate cut by the ECB is anticipated in June, subsequent rate cuts may not be as substantial.

UK’s Strong PMI Data and Its Impact:
The UK’s PMI data indicates robust economic activity, with output prices continuing to decline despite a significant increase in input prices. The Bank of England is expected to start cutting interest rates from August and will do so quarterly. Given the instability in wage growth and price data in the UK, with recent readings showing unexpected increases, the central bank may adopt a cautious approach.

Japan’s Potential Currency Intervention:
Mitsuhiro Furusawa, Japan’s former vice minister of finance for international affairs, noted that the yen has depreciated rapidly against the dollar, despite no changes in US and Japanese interest rates. He warned that if this trend persists, Japan might intervene, adding that such a move is “very close.” The market’s response to US economic data could trigger action by Japanese authorities. A joint statement last week by Japan, the US, and South Korea indicates that Japan’s allies will not hinder its potential market interventions. The Bank of Japan could increase interest rates as early as July.
Mitsuhiro Furusawa, a former top currency official in Japan, has warned that the country is nearing a point where it may need to intervene in currency markets if the yen continues to weaken. Despite stable interest rates in the US and Japan, the yen has depreciated rapidly against the dollar. If this trend persists, Furusawa believes that intervention is imminent.
This statement comes as the yen approaches a 34-year low against the dollar, prompting Japan’s Finance Minister, Shunichi Suzuki, to affirm the authorities’ readiness to take action. The yen’s vulnerability is further highlighted by an upcoming Bank of Japan (BOJ) meeting and the release of the Federal Reserve’s preferred inflation measure.
Furusawa anticipates the BOJ could raise interest rates as early as July, although he, like most economists, does not expect a rate change at the upcoming meeting. He warns that the anticipated decision to maintain current rates could trigger another drop in the yen’s value.
Furusawa argues that unchecked speculation in the exchange rate is unacceptable and expects Japanese authorities to intervene before the yen reaches 160 to the dollar. This view is contrary to some market participants, such as Bank of America Corp., who predict the yen could slide further to 160.
Japan has previously intervened in currency markets, spending around $60 billion in September and October of 2022 when the yen neared 146 and 152 levels. A recent joint statement with the US and South Korea indicates that Japan’s allies are unlikely to prevent it from intervening in the market.
Furusawa attributes the yen’s weakness to the rate differential between Japan and the US. He suggests that this differential will likely remain until at least the summer, with economists predicting the BOJ’s next move in October.
Furusawa also mentions the possibility of a rate hike in July if the BOJ is confident it can do so after assessing the impact of an income tax rebate and wage increases. He notes that the BOJ’s expected projection of 2% price growth in the fiscal year beginning in April 2026 could support a case for a July rate hike. However, he acknowledges that adjusting monetary policy to correct currency trends could be challenging.

Germany’s Economic Expansion:
Germany’s composite PMI for April rose from 47.7 to 50.5. The preliminary manufacturing PMI stood at 42.2, and the services PMI jumped from 50.1 to 53.3. While the recession was predominantly observed in the manufacturing sector, the overall economy may have dodged a downturn, with the services sector likely acting as a catalyst. After contracting in the final quarter of the previous year, Germany was expected to face a mild recession during the winter. However, the Deutsche Bundesbank stated last week that output might have slightly increased in the first three months of the year due to a boost in industrial production, exports, and construction, suggesting that Germany may avoid a recession.

Bank of England’s Policy Dilemma Amid ECB and Fed’s Rate Decisions:
The Bank of England (BoE) is caught in a policy conundrum, sandwiched between the European Central Bank (ECB), which is set to cut rates by mid-year, and the U.S. Federal Reserve, which some believe may not ease at all in 2024. The BoE finds itself navigating its own path, potentially leaning towards the U.S. due to lagging UK disinflation, but influenced by the Eurozone’s slowing economic activity.
During the first quarter, financial markets had priced in simultaneous rate cuts by all three major central banks this summer. However, a divergence has emerged this month, scattering the timelines. BoE’s chief economist, Huw Pill, stated that the Bank could adjust policy independently of the Fed and the ECB, though he remained non-committal on which direction it might lean towards.
Following a few days of mixed messages from the BoE, with Governor Andrew Bailey and his deputy Dave Ramsden sounding dovish about achieving and maintaining the BoE’s inflation target, the markets are left to interpret the Bank’s stance. As it stands, money markets fully price a first quarter-point BoE rate cut by its August 1 meeting, with a roughly even chance of a move as early as June 20.
This timeline aligns closely with the ECB, which is more than fully priced to ease 25 basis points by July 18, just two weeks before the BoE’s preferred date, and some two-thirds priced for an early move as soon as June. The Fed, however, is not expected to act until its September 18 policy meeting, with just a 50% chance that it moves as early as July 31.
Despite these divergences, it’s still possible that all three banks could move together in the fortnight between July 18 and August 1. However, the gaps widen when looking at implied year-end rates, with just 40 bps of cuts expected from the Fed, 55 bps from the BoE, and almost 75 bps from the ECB.
Barclays strategists now predict the BoE will start to cut as soon as June and reduce its policy rate by as much as 75 bps by year-end. Meanwhile, Deutsche Bank’s chief UK economist, Sanjay Raja, sees 75 bps of cuts for this year, though he expects deeper cuts through 2025 to as low as 3% in early 2026.
Currency markets are starting to fluctuate based on these shifting views. The BoE’s trade-weighted sterling index dropped more than 1% this month as markets detected a shift in the BoE’s thinking. Given that the trade-weighted pound has appreciated 3% over the past year, the BoE may feel comfortable sounding more dovish than the Fed at this point.
Barclays economists Jack Meaning and Abbas Khan note that the BoE’s early rate hike in December 2021 showed that it wasn’t afraid of moving independently. However, they added that a rate divergence of 100 bps would weaken sterling by a little over 2% overall, adding only about 10-20 bps to headline UK inflation, which they do not consider sufficient to change the path for UK policy.
If sterling becomes a factor, it’s not clear whether the BoE should lean towards one of the two major central banks. On the surface, Britain’s greater overall trade linkages with Europe might suggest sticking closer to the ECB’s earlier path. However, data from the government’s customs and excise office shows that a significant portion of total EU and non-EU imports to the UK are invoiced in dollars, more than those invoiced in sterling and almost twice those invoiced in euros. Similarly, more than 40% of total UK exports are invoiced in dollars, three times the share invoiced in euros.
Given these complexities, if sterling movements become a concern, it’s not obvious which way to tilt between the dominant Western blocs, and maintaining a balanced approach may be the safest course of action.

Survey Divergence Hits the Dollar:
USD: The Decline May Not Last: Yesterday, the US dollar experienced a decline as the US S&P Global PMIs were weaker than anticipated. The composite index fell to 50.9, with manufacturing returning to contraction (49.9) and services slowing to 50.9. These surveys are not as highly regarded as the ISM in the US, but markets were likely surprised by the diverging trends with eurozone PMIs. For the first time in 12 months, the eurozone composite PMI is higher than the US one. While the manufacturing outlook remains much more uncertain in the eurozone, the service sector seems to be in better shape.
This naturally contrasts with the idea of US growth exceptionalism. Tomorrow, we’ll see how much GDP growth has slowed in the first quarter. While activity indicators could prompt some FX moves, the kind of major repricing in Fed expectations that we saw in April can only be triggered by lower inflation, weak employment figures, or Fed communication. Therefore, the major risk events for the dollar in the coming days are: PCE inflation on Friday, the Fed meeting on 1 May, and jobs data on 3 May. The Fed Funds futures curve continues to price in only 40bp of easing this year.
Even before the US PMIs were released, the FX market was navigating a risk-on, dollar-off narrative. European equities have now had three consecutive good sessions, and US tech shares are finding some support. Markets are investing in FX by favoring antipodeans (Aussie and New Zealand dollar) and scandies (Norway’s krone, Sweden’s krona) more than others in G10. These are the four high-beta currencies that have shown the clearest risk-on character, while the Canadian dollar should remain a laggard in risk rallies – especially when fueled by softer US data.
The euro-heavy DXY index has slid below 106.0, but remains some 1.5% higher than the April lows (104.1). We may not see much excitement in dollar crosses until GDP and most importantly PCE figures are released later this week. The dollar may stay under some modest pressure for a bit longer, but resilient GDP and PCE could favor a return above 106.00 by the weekend.

EUR: PMIs Not Affecting ECB Pricing: For once, US-eurozone divergence in data has benefited EUR/USD, which is attempting consolidation at 1.0700 this morning. As noted above, hard data (inflation and employment above all) has been the real drag on the pair so far, so caution is warranted when it comes to rallies prompted by activity surveys like PMIs.
This morning, the German Ifo will be in focus, with consensus expecting an improvement across all three main surveys (business climate, current assessment, and expectations). Good figures could cement more upbeat expectations on eurozone growth, although the chances that this materially impacts European Central Bank pricing are low.
Markets appear very comfortable with pricing for 75bp of easing by year-end, and ECB members appear to be converging around this view. Even the generally hawkish Joachim Nagel reiterated yesterday that it may be appropriate to cut rates as inflation declines. All this makes us reluctant to call for another leg higher in EUR/USD: the 2-year EUR:USD swap rate gap has tightened by a mere 5bp since the -160bp bottom, and continues to unequivocally point at a weaker EUR/USD. We have long discussed how resilient equities have played a role in keeping EUR/USD above its yield differential-implied short-term fair value, so a continuation of the positive risk sentiment environment appears necessary to keep EUR/USD above 1.0700.

GBP: Data and Pill Fuel Rebound: The pound rebounded by almost 1% versus the dollar yesterday, thanks to the combined effect of a weaker USD, supported risk sentiment, better-than-expected UK PMIs and some relatively hawkish comments by Bank of England Chief Economist Huw Pill.
Despite the manufacturing PMI survey dropping below 50.0 in April, the UK service sector showed good momentum (54.9), carrying the composite index to a one-year high. The broadly positive signals for growth have to be weighed, however, with data on the UK budget deficit exceeding expectations to an extra £12.4bn over the fiscal year. This inevitably curbs expectations of another tax-cutting event before the election and has a net negative impact on sterling over time as the risks to fiscal policy-led inflation fade.
Moving onto the Bank of England’s communication, markets have received further indications of how divided the MPC is at the moment. Yesterday, Chief Economist Huw Pill said there is a “reasonable way to go” before he is convinced that underlying price pressures have been tamed. As things stand now, it looks like at least four of nine MPC members are dissenting against the recent dovish rhetoric. The Sonia curve has reacted by pricing out around 5bp of cuts for the upcoming meetings. Still, an August 25bp decrease remains fully priced in. EUR/GBP is back below 0.8600 this morning, and we could see some stabilization in the short term as both the UK calendar and BoE-speak go quiet.

AUD: Inflation Surprise Puts Aussie $ in Good Position: We have been calling for upside risks to the inflation picture in Australia, and are not surprised to see AUD rallying this morning after stronger-than-expected CPI figures. The 1Q print showed core measures of inflation staying above 4%, while the headline rate only decelerated to 3.6% year-on-year. The March CPI reading came in hotter than expected at 3.5% (cons. 3.4%).
Australia’s two-year swap rate jumped by around 15bp after the release, and at 4.51% is at the highest since November 2023. The AUD OIS curve priced out a cut before year-end, with only 8bp of easing left for the December meeting.
While the risks of another hike are not totally negligible, inflation figures were probably insufficient to warrant such a turnaround in policy. We think the Reserve Bank of Australia can achieve its inflation target without having to raise rates again, but may well need to digest some further bumps in inflation, which suggest further steps to the dovish side in communication will be taken with more caution.
All these developments are positive for AUD, which has jumped back above 0.6500. While still vulnerable to risk-off turns, the Australian dollar is one of those currencies that can benefit from delayed policy easing expectations domestically and one of those in a stronger position to stay supported in a stable risk environment.

World’s Largest Wealth Fund Says There’s ‘Clearly A Lot Of Froth’ In The Tech Sector Right Now

The CEO of Norway’s massive sovereign wealth fund, Nicolai Tangen, expressed concerns about the current state of the tech sector, describing it as having “a lot of froth”. This observation comes ahead of a significant week for tech earnings, with major U.S. tech companies like Tesla, Meta, Microsoft, and Alphabet set to release their results.
The tech sector has recently experienced a downturn, with the Nasdaq Composite falling by 5.5% last week, marking its worst weekly performance since November 2022. Nvidia, a leading company in computer chips and artificial intelligence, was among the most significant contributors to these losses.
Tangen, who leads Norges Bank Investment Management (NBIM), the entity managing the Norwegian Government Pension Fund Global, highlighted the importance of social psychology in investment decisions. He suggested that the upcoming tech earnings reports would provide more clarity on whether the tech sector is indeed overvalued.
The Norwegian Government Pension Fund Global, established in the 1990s to invest surplus revenues from Norway’s oil and gas sector, is the world’s largest sovereign wealth fund. Valued at 17.7 trillion kroner ($1.6 trillion) at the end of March, the fund has invested in over 8,800 companies across more than 70 countries, making it one of the world’s largest investors.
The fund reported a first-quarter profit of around $110 billion, largely due to strong returns on its investments in technology stocks. Trond Grande, the deputy CEO of NBIM, noted that investors are taking a more nuanced look at the business models of the so-called Magnificent Seven U.S. tech giants, which include Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla.
When asked about the fund’s stance on semiconductor companies like Nvidia amid concerns of oversupply, Tangen stated that he didn’t have a strong opinion on whether Nvidia is overvalued, but acknowledged the company’s leading position in the chip sector.

Bitcoin Likely To Hit $100,000 Mark In 2024, Experts Say:
The potential of Bitcoin’s price reaching or exceeding $100,000 by the end of 2024 is on high talks. Despite recent market downturns, many traders, experts, and analysts remain optimistic about Bitcoin’s future, especially given its more than 100% rise in the last 12 months and its all-time intraday high of $73,835.57 on March 14, 2024.
Global Bullish Views on Bitcoin: A survey by Finder, which included the opinions of 31 fintech experts, suggests that Bitcoin could reach $122,000 by the end of 2024 and $155,000 by 2025. This optimism is fueled by increasing investments from institutional investors. Global asset management firm AllianceBernstein expects Bitcoin’s bullish trajectory to resume after halving. Crypto analyst Captain Faibik also predicts a bullish rally, estimating a surge of 15-20% in the coming days.
Global Bearish Views on Bitcoin: However, some analysts are turning bearish. Markus Thielen, founder of 10X Research, expresses concern over a significant price correction for risk assets, including stocks and crypto, due to unexpected and persistent inflation. Goldman Sachs reiterated its belief that Bitcoin does not belong in investment portfolios, and chain data provider Santiment found that Bitcoin sentiment has soured following the recent dip.
Middle East Sentiments on Bitcoin:In the Middle East, the sentiment towards Bitcoin is largely bullish. Talal Tabbaa, the founder of MENA-grown crypto broker CoinMENA, believes that Bitcoin hitting $100,000 is a matter of when, not if. Vineet Budki, managing partner and CEO of UAE-based Cypher Capital, is even more bullish, seeing Bitcoin reaching heights of $150,000-$200,000 in this season’s all-time high and potentially $1 million by 2030.
Bitcoin’s Resilience: Matt Dixon, the founder and CEO of UAE-based Evai, an AI crypto rating platform, believes that Bitcoin has demonstrated resilience as it integrates into the realm of essential holdings within a well-rounded investment portfolio. He notes that Bitcoin now stands at the threshold of a new phase: institutional acceptance. As its ‘Stock to Flow’ ratio surpasses that of gold with each halving, the possibility of Bitcoin crossing the $100,000 mark and beyond in the near future seems increasingly plausible. Sam A. Speirs, regional director for Bitget crypto exchange, agrees, stating that Bitcoin’s trajectory towards $100,000 before 2025 is not just a possibility, it’s a likelihood.

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🔥News releases on This WEEK :

22/04 Mon 8:00pm EUR Consumer Confidence

23/04 Tue 2:00pm EUR Flash Manufacturing PMI

23/04 Tue 2:30pm GBP Flash Manufacturing PMI

23/04 Tue 7:45pm USD Flash Manufacturing PMI

23/04 Tue 8:00pm USD New Home Sales

24/04 Wed 7:30am AUD CPI q/q + y/y

24/04 Wed 6:30pm CAD Core Retail Sales m/m

24/04 Wed 6:30pm USD Core Durable Goods order

25/04 Thu AUD+NZD Bank Holiday

25/04 Thu 6:30pm USD Advance GDP q/q & Unemployment Claims

25/04 Thu 8:00pm USD Pending Home Sales m/m

26/04 Fri Tentative JPY Monetary Policy Statement

26/04 Fri 6:30pm USD Core PCE Price Index m/m

26/04 Fri 8:00pm USD Revised UoM Consumer Sentiment

N.B. Time mentioned here is on Gmt +6

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Sources :
– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin“

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