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What’s happening: The EUR/USD forex pair moved lower on Monday amid strength in the US dollar.
What happened: The US dollar extended gains from Friday, with growing speculations of the Federal Reserve hiking its benchmark interest rates by 25 basis points at its May meeting.
Traders also digested comments from ECB (European Central Bank) President Christine Lagarde regarding the European and US currency.
Why it matters: The economic calendar was relatively slow on Monday, with only a few major releases from the Eurozone and the US.
Italy’s annual inflation rate eased to 7.6% in March, versus 9.1% a month ago. The figure was the lowest since May 2022, amid a pullback in energy prices. On a monthly basis, consumer prices declined by 0.4%, notching the first contraction in 11 months.
The New York Empire State Manufacturing Index surprisingly improved to 10.8 in April, from -24.6 in the prior month, and topped market expectations of -18. The NAHB/Wells Fargo Housing Market index jumped for a fourth straight month to a reading of 45 in April.
With the Fed expected to hike interest rates in May, the US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.5% to 102.10 on Monday.
Markets also expect the ECB to hike its benchmark interest rate by 25bps at its upcoming meeting. Lagarde said that countries are looking for alternative invoicing currencies, including the Chinese renminbi and the Indian rupee, given the rise in the US dollar. Although these developments do not signal any immediate loss of dominance for the greenback or the euro, the US or the Eurozone should not take their international currency status as “granted,” she added.
The EUR/USD pair fell around 0.6% to 1.0930 on Monday. European stocks closed mostly flat, with the STOXX Europe 600 Index slipping 0.01% to settle at 466.84, as gains across travel and mining shares were offset by losses in financial stocks.
What to watch: Data on balance of trade and ZEW Indicator of Economic Sentiment will be released today. The Eurozone’s trade deficit is likely to narrow to €11.9 billion in February, from €30.6 billion in January, while the ZEW Indicator of Economic Sentiment for the Eurozone is expected to increase to 13 in April, from 10 in March.
Traders will also keep an eye on inflation data from the Eurozone, scheduled for release on Wednesday. The consumer price inflation rate in the Eurozone is expected to ease to 6.9% year-over-year in March.
Context: Bitcoin fell below the $30,000 level on Monday, after rallying through last week.
Details: The largest cryptocurrency by market capitalisation has gained around 80% year to date, topping the performance of traditional risky assets, including the Nasdaq 100 index. The recent rally in the cryptocurrency came after 12 months of decline, when prices tumbled approximately 76%, bottoming out in November 2022.
Bitcoin surpassed the $31,000 mark last week, which resulted in some cautious trading at the start of this week. The digital coin fell below $30,000 again on Monday. However, market sentiment for the cryptocurrency space remained elevated. Ethereum, the world’s second-largest crypto, remained above the $2,000 mark.
Inflation rates around the world are showing signs of easing, which could result in major central banks putting a pause to their monetary tightening. This will provide further liquidity to the crypto market.
What are expectations: Traders will keep an eye on comments from central bank officials around the world. Inflation data from major economies will also remain in focus.
Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.30%, 0.33% and 0.06%, respectively.
Russia’s defence ministry said that the Wagner mercenary group had captured another two areas of Bakhmut. The safe-haven US dollar index fell slightly this morning.
China’s economy expanded 4.5% year-over-year in the first quarter, following 2.9% in the prior quarter, lending support to the CNY/USD forex pair.
Brazil’s Industrial Entrepreneur Confidence Index fell by 1.1 points to 48.8 in April, from 49.9 in the previous month, which sent the BRL/USD pair lower in forex trading this morning.
Kazakhstan’s industrial production surged 5.2% year-over-year in March, the highest level in a year. The news lent support to the KZT/USD forex pair.
Foreign investors bought a net C$4.6 billion of Canadian securities during February, sending the CAD/USD pair higher in forex trading this morning.
UK’s unemployment rate, claimant count, employment change and average weekly earnings, Bank of Indonesia’s interest rate decision, Italy’s balance of trade, Germany’s ZEW indicator of economic sentiment, Canada’s inflation rate and new motor vehicle sales, US building permits, housing starts and Redbook index, API’s crude oil stock change, as well as China’s foreign direct investment.
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