Fed Chair Powell stated it is appropriate in his view to move a little more quickly on interest rates.
San Francisco Fed President Daly stated that the central bank needs to get interest rates to 2.5% by the end of the year and the central bank was likely to raise rates by 50 basis points at a couple of meetings. She added that it was an open question how far rates would need to move above 2.5%.
Although she added that the central bank should not move too fast, the overall rhetoric was hawkish and markets moved to price in three successive 50 basis-point rate hikes by July.
Fed Chair Powell stated that it is appropriate in his view to move a little more quickly on interest rates and that a 50 basis-point increase will be on the table for the May meeting.
The Philadelphia Fed manufacturing index declined to 17.6 for April from 27.4 the previous month and below market expectations of 21.0. Production increased at a slightly faster rate on the month, but there was a slower rate of advance in new orders while unfilled orders increased more slowly. The labour market remained stronger with a faster rate of employment increase on the month.
Inflation pressures remained very strong with the prices paid index increasing to 84.6 and the highest reading since June 1979.
Companies were less confident over the outlook while inflation pressures were expected to ease slightly.
US yields had already moved higher in European trading and Treasuries dipped further following comments from Daly and Powell. There was a fresh increase in yields with the 10-year rate peaking around 2.97% before a limited retreat to around 2.93%.
US equities posted firm gains in early trading on Thursday, but there was a sharp retreat following the hawkish Fed rhetoric. Wall Street has been broadly resilient, but markets suddenly took fright as the hawkish rhetoric finally had an impact.
There was also further selling pressure in the tech sector amid concerns over the growth outlook which had a wider negative impact on sentiment.
Japanese Finance Minister Suzuki held talks with US counterpart Yellen and stated that there would be close co-operation on FX rates. There was some speculation that the US would be prepared to intervene in markets which triggered a fresh element of caution over selling the Japanese currency.
Bank of England Monetary Policy Committee (MPC) member Mann stated that tightening now to keep inflation anchored means that less tightening is required later. She noted the risk that inflation will stay above target for longer than expected given the size of the inflation shock and a tighter monetary policy is warranted.
As far as the May decision is concerned, she stated that consumption developments and whether there is evidence of wider pricing pressures will be crucial. Overall, she was worried that weakness in consumer spending would not come quickly enough to stem price increases.
Governor Bailey stated that the bank is treading a very tight line between taming inflation and heaping greater woe on the economy with trends in the labour market likely to be crucial.
The UK GfK consumer confidence index dipper further in April and registered the second-lowest reading on record. Retail sales posted a 1.4% decline for March after a 0.5% decline the previous month. The data will reinforce important reservations over the outlook.
The second round of the French Presidential election will be held on Sunday. Opinion polls suggest a comfortable win for Macron and it will be a major surprise in Le Pen is able to upset opinion polls and triumph. A Le Pen victory would risk sharp selling on the Euro.
Euro-zone consumer confidence edged higher for April, but confidence in the outlook remained very fragile. The Euro was unable to gain further support from ECB rate-hike expectations. Higher US yields were crucial in boosting the US dollar. EUR/USD retreated to lows near 1.0820 before securing a tentative recovery to around 1.0845.
USD/JPY posted highs around 128.70 before being dragged lower by weaker equities with a retreat to just below 128.00. Yield trends also tended to undermine the Swiss franc. USD/CHF posted fresh 22-month highs just above 0.9550 before correcting slightly.
Sterling briefly ticked higher following Mann and Bailey’s comments, but failed to hold gains, especially with fragile risk conditions and weak data. GBP/USD drifted lower towards 1.3000 amid weak UK sentiment. GBP/EUR dipped to 1.1960.
Commodity currencies dipped sharply amid a firm dollar, especially when US equities came under pressure. AUD/USD saw further selling after a dip below 0.7400 with lows near 0.7330 on Friday. USD/CAD also secured a strong advance to just above 1.2600 before stabilising.
|07:00||GBP Retail Sales ex-Fuel (Y/Y)(MAR)||5.60%||4.60%|
|07:00||GBP Retail Sales ex-Fuel (M/M)(MAR)||0.50%||-0.70%|
|07:00||GBP Retail Sales (M/M)(MAR||-0.70%||-0.30%|
|07:00||GBP Retail Sales (Y/Y)(MAR)||7.80%||7.00%|
|08:15||France - Markit Mfg PMI(APR)||50|
|08:15||France - Markit Serv PMI(APR)||55||57.4|
|08:30||EUR German Manufacturing PMI (M/M)(APR)||56.9|
|08:30||EUR German PMI Services(APR)||53.8||56.1|
|09:00||Euro-Zone PMI Manufacturing(APR)||56||56.5|
|09:00||Euro-Zone PMI Composite(APR)||54.9|
|09:00||Euro-Zone PMI Services(APR)||54.2||55.6|
|13:30||CAD Retail Sales Ex Autos (M/M)(FEB)||2.40%||2.40%|
|13:30||CAD Retail Sales (M/M)(FEB)||3.20%|
|13:30||CAD RMPI (M/M)(MAR)||6.00%|
|14:45||CAD RMPI (M/M)(MAR) USD Manufacturing PMI(APR)||56.3||58.8|
|14:45||USD Markit PMI Composite(APR 01)||57.7|