Risk appetite attempts to recover.

US producer prices increased 0.5% for April, in line with consensus forecasts, while the year-on-year rate declined slightly to 11.0% from 11.5% and slightly above market expectations. Core prices increased 0.4% on the month with the year-on-year increase at 8.8% from 9.6% previously and marginally below expectations of 8.9%.

Initial jobless claims increased slightly to 203,000 in the latest week from a revised 202,000 the previous week and above forecasts of 195,000 while continuing claims declined to 1.34mn from 1.39mn previously.

Fed Chair Powell was confirmed by the Senate for a second term and reiterated that he was firmly committed to bringing inflation back under control. He added that it was still appropriate at this stage to increase rates by 50 basis-points at the next two meetings, although the central bank will be adaptive. He did warn over the risk of a hard landing, especially with factors outside the Fed’s control.

US equities were again subjected to very choppy trading on Thursday with frequent changes in direction as fears and bargain hunting clashed.

The main indices did rebound in the final hour of trading which prevented the S&P 500 index technically entering bear-market territory and futures were able to make limited headway on Friday.

US bond yields moved lower again on Thursday with an element of defensive demand for Treasuries as risk appetite dipped again.

The 10-year yield retreated to 2.85% before a recovery to 2.88% with the easing of upward pressure triggering a slight recovery in risk appetite, especially with Wall Street recovering slightly.

Cryptocurrencies attempted to recover ground after sharp losses with bitcoin back above $30,000.

There were further concerns over the outlook for the Chinese economy with the authorities mandating Beijing residents to stay at home for three days for testing. There are also further difficulties in Shanghai as lockdowns continue with key manufacturers having to suspend production.

USD/CHF broke above the parity level on Thursday for the first time since December 2019 and held above this level on Friday with a three-year high.

Bank of England Deputy Governor Ramsden stated that the bank had not gone far enough yet in terms of tightening monetary policy. He also considered that there are upside inflation risks over the medium term with stronger than expected pressures from rising wages. He did, however, consider that the rate hikes seen already were having an impact.

There were no major data releases on Thursday with underlying risk conditions dominating. Confidence in the Euro-zone outlook deteriorated further amid the uncertainty over gas supplies. EUR/USD dipped back below the 1.0500 level which triggered sharp selling pressure. EUR/USD slumped to 5-year lows below 1.04 and close to 19-year lows with the pair just below 1.0400 on Friday.

The dollar overall posted a fresh 20-year high. Lower US yield helped underpin the yen. Liquidation of short yen positions was also significant.

Bank of Japan Governor Kuroda reiterated the need for dovish forward guidance.  USD/JPY retreated sharply to lows near 127.50 before a recovery to near 129.00 as equities recovered with high volatility.

There was choppy Swiss franc trading. USD/CHF posted 5-year highs above 1.0040 before correcting slightly.

Sterling managed to demonstrate some resilience after recent heavy losses, but sentiment remained fragile. GBP/USD settled just above 1.2200 on Friday.

There was no relief for commodity currencies on Thursday as heavy losses continued before slight relief on Friday. AUD/USD dipped to 23-month lows below 0.6850 before a recovery to near 0.6900. Bank of Canada Deputy Governor Gravelle stated that interest rates may need to be raised above the neutral level. USD/CAD traded at 18-month highs above 1.3000 before trading close to this level on Friday.

Economic Calendar