Sterling lost ground amid underlying fears over the UK outlook and Brexit trade fears.

Wall Street equities registered sharp losses on Wednesday with the sharpest one-day decline in the S&P 500 index since June 2020.

Weaker than expected results from some key consumer-orientated companies triggered renewed fears over the overall economic trends and potential squeeze on margins which pulled the wider market lower.

Chicago Fed President Evans reiterated that interest rate increases should be front loaded. He considers that a neutral rate is in the range of 2.00-2.50% and that rate hikes could slow to 25 basis-point hikes once the neutral level has been achieved. Philadelphia head Harker took a similar stance as he expects two 50 basis-point rate hikes in June and July with measured increases thereafter.

US longer-term yields edged lower as equity markets moved sharply lower.

Risk appetite attempted to stabilise on Thursday as Shanghai announced plans for a further slow easing of restrictions. There has also been a net recovery in port activity which increased hopes that supply-side issues could ease slightly.

In this context, risk conditions attempted to stabilise despite the sharp US equity-market losses.

The dollar posted gains on Wednesday as risk appetite deteriorated sharply. The US currency, however, was unable to take full advantage and lost some ground on Thursday with some reservations over the US outlook triggering valuation doubts.

Swiss National Bank Chair Jordan stated that the Swiss currency is a safe-haven which means that negative interest rates and forex interventions remain necessary to meet the bank’s mandate. He added that inflation will temporarily rise above the target, but then decline quickly.

The franc posted strong gains on the day.

The headline Canadian CPI inflation rate increased to 6.8% for April from 6.7% previously and the highest rate since the first quarter of 1991.

There was also a further increase in core inflation rates. Following the data, there were even stronger expectations that the Bank of Canada would sanction another 50 basis-point rate hike at the June 1st meeting.

ECB rhetoric continued to signal a July rate hike. Money markets priced in slightly more rate hikes this year, but the Euro failed to secure further support on Wednesday. The dollar gained defensive support as equites lost ground. EUR/USD dipped back below 1.0500 with lows at 1.0460.

US 10-year bond yields edged lower to near 2.90% after touching 3.00%. The dollar lost ground on Thursday with EUR/USD just below 1.0500 on Thursday.

The yen gained renewed backing as equities moved sharply lower. USD/JPY dipped sharply to lows below 128.00, but with a net recovery to 128.65 on Thursday. USD/CHF dipped below 0.9900 to lows near 0.9850 with sharp losses for EUR/CHF to near 1.0350.

Sterling lost ground amid underlying fears over the UK outlook and Brexit trade fears. GBP/USD dipped sharply to below 1.2400, but found support below 1.2350. GBP/EUR hit selling interest near 1.1855.

Commodity currencies dipped lower as risk appetite deteriorated but demonstrated some resilience. The Australian employment increase was held to 4,000 compared with expectations of a 30,000 increase, but unemployment met expectations with a decline to 3.9% from 4.0%. AUD/USD dipped to lows near 0.6950 before a net recovery to near 0.7000. USD/CAD again found support below 1.2800 and settled around 1.2840.

Economic Calendar

11:00GBP CBI Industrial Trends Orders (MAY)14
12:30ECB Monetary Policy Meeting Accounts
13:30USD Philadelphia Fed. Manufacturing Index(MAY)17.6
13:30CAD New Housing Price Index (M/M)1.20%
13:30CAD RMPI (M/M)(APR)11.80%
15:00USD Existing Home Sales(APR)5.65M5.77M
15:00USD Existing Home Sales Change(APR)-2.70%
23:45NZD Trade Balance (M/M)(APR)-392M
23:45NZD Trade Balance (Y/Y)(APR)-9,110M

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.