Forex News

Commerzbank’s Michael Pfister expects the Bank of Canada (BoC) to keep rates unchanged as policymakers assess the impact of the Middle East conflict and softer inflation. With core inflation stabilizing just above 2% and the real economy recovering slowly, he argues that any Canadian rate hike is unlikely before the last quarter, leaving Oil prices as the main driver for the Canadian Dollar (CAD) for now.

BoC seen on extended hold

"We are unlikely to see any change in interest rates from the Bank of Canada (BoC) today. Like many other G10 central banks, policymakers are likely to prefer waiting to see the ultimate impact of the conflict in the Middle East."

"This view is supported by the latest inflation figures: the March figures were lower than expected, and the core rate has finally stabilised at just over 2% after many months. There are also a number of other reasons:"

"The real economy is recovering very slowly; Canada should be somewhat better protected from a price shock due to its energy independence; and, above all, there is the ongoing difficult relationship with the US and the approaching USMCA [United States-Mexico-Canada Agreement] negotiations."

"There are therefore few reasons to rush ahead and raise interest rates. Even if an interest rate hike ultimately becomes necessary due to the war, it is likely that other central banks will react first. But a Canadian interest rate hike is unlikely to be an issue until the last quarter of the year."

"For now, monetary policy is unlikely to play a decisive role in moving the Canadian dollar, and the rise in oil prices is likely to take centre stage."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• EUR/USD pulls back below 1.1700, but remains trading within previous ranges.
• The Fed is expected to leave interest rates on hold in what is likely to be Powell's last meeting as Chair.
• Risk appetite remains subdued amid the stalled US-Iran peace process.

The Euro (EUR) maintains a moderate negative tone against the US Dollar (USD) on Wednesday, trading within a tight range around 1.1700. A sharper-than-expected deterioration of the Eurozone’s economic sentiment data is adding pressure to a pair already weighed by the cautious market mood, ahead of the US Federal Reserve’s (Fed) decision and shrinking hopes of a negotiated end to the Iran war.

The European Commission's Economic Sentiment Indicator dropped to a reading of 93.0 in April from 96.2 in March, below market expectations of a softer decline, to 95.3. Likewise, the Industrial Confidence fell to -7.7 against the market consensus of a steady -7 reading, while the Services Sentiment Index dropped to 0.9 from 4.1 in the previous month, also below the 3.8 forecasted by market analysts. On the positive side, Consumer Confidence has remained unchanged, at -20.6.

Investors are now waiting for the German preliminary Harmonized Index of Consumer Prices (HICP) for April, which is expected to show higher price pressures, adding pressure on the European Central Bank (ECB) to hike interest rates ahead of its monetary policy decision, which is due on Thursday.

The highlight of the day, however, will be the Fed’s monetary policy decision. Futures markets are fully pricing steady interest rates, according to the CME Fed Watch tool, and a nearly 80% chance that they remain at the current level in December's meeting.

The market, however, will be particularly attentive to Fed Chairman Powell’s press conference, as it is likely to be his last one. His term ends on May 15, and former Governor Kevin Warsh is expected to replace him at the next meeting. The question is whether Powell will remain in his place at the Board of Governors or will exit the bank for good as US President Donald Trump demanded.

Powell has previously affirmed that he would only remain as governor if he sees risks to the central bank’s independence.

On the geopolitical front, things remain at a standstill after Trump disliked the peace plan sent by Tehran on Monday. The US president wants to settle the nuclear issue before sealing an agreement. Meanwhile, the Strait of Hormuz is about to end its second month of closure, and The Wall Street Journal reported on Tuesday that Trump told aides to prepare for an extended blockade of Iranian ports.

Technical Analysis: Looking for direction around 1.1700

EUR/USD keeps moving back and forth in a roughly 75-pip range around 1.1700, with investors wary of taking excessive risks. Technical indicators show a neutral-to-bearish bias, although the support area below 1.1675 is providing a solid cushion so far.

The 4-hour chart hints at a soft momentum, with the Relative Strength Index (RSI) hovering below the 50 line and the Moving Average Convergence Divergence (MACD) fluctuating around the zero line with slightly negative readings.

Bulls should break session highs at 1.1720 and the April 22 and 27 highs in the 1.1750-1.1760 area to ease bearish pressure and retest the broken trendline, now at 1.1780.

Bears, on the other hand, need additional impulse to extend the downtrend from mid-April highs through a cluster of support levels between 1.1675 and 1.1650, where the pair was contained several times in early April. Below here, the next target is the April bottom between 1.1505 and 1.1525.

(The technical analysis of this story was written with the help of an AI tool.)

Silver prices (XAG/USD) fell on Wednesday, according to FXStreet data. Silver trades at $72.81 per troy ounce, down 0.38% from the $73.09 it cost on Tuesday.

Silver prices have increased by 2.43% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 62.82 on Wednesday, broadly unchanged from 62.88 on Tuesday.

(An automation tool was used in creating this post.)

Deutsche Bank analysts highlight that Australian Consumer Price Index (CPI) rose 4.6% year-on-year in March, slightly below expectations, while trimmed mean inflation stayed above the Reserve Bank of Australia's (RBA) target band. Three‑year bond yields fell and futures-implied odds of an RBA hike next week dropped to 68%, as markets weighed softer core data against still‑elevated Oil prices in Q2.

Inflation eases but remains high

"Australian CPI rose by +4.6% year-on-year in March, marginally below the anticipated +4.8%, but it increased significantly from the 3.7% recorded in the previous quarter."

"Core inflation, as indicated by the trimmed mean CPI, rose by +3.3% in March, remaining steady from the previous month while still surpassing the Reserve Bank of Australia’s (RBA) annual target of 2% to 3%."

"Q1 trimmed mean came in at 0.81% qoq around a tenth softer than expectations but Q2 so far has continued to see oil prices high so there won't be too much comfort with that print."

"For now, yields on the 3-year policy-sensitive Australian government bonds are down by -4.5 basis points, currently standing at 4.68% as we go to print."

"The probability of a hike next week based on futures are down 15pp to 68%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

ING strategist Francesco Pesole notes the US Dollar (USD) has recovered as United States (US) equities wobble and geopolitical tensions persist. Pesole highlights that higher fuel and airline prices are pushing US Consumer Price Index (CPI) back toward 4%, but the Federal Reserve (Fed) still sees this as a supply shock. Powell’s likely final press conference may lean hawkish, with potential spillovers from big US tech earnings into FX.

Fed stance and equities drive Dollar

"The dollar has recovered some ground over the past 24 hours. While growing nervousness about the lack of progress on a US-Iran deal clearly played a role, it looks to us that it was mostly some jitters in US equities due to AI concerns that allowed the USD to rebound. As discussed yesterday, in many USD pairs, global equities are currently having the highest beta in our short-term models."

"Domestically, the big event is the Federal Reserve’s rate announcement at 19 BST/20 CET. Here is our preview. Higher fuel and airline prices are pushing CPI back toward 4%, but the Fed has so far indicated it views this as a transitory supply shock rather than a demand-driven inflation spiral."

"There is a good chance the Fed will signal it’s still too early to conclude the inflation-growth trade-off and related monetary policy implications. However, the latest signs from the Middle East are not encouraging. While Powell’s signals may be taken with some caution, given that this should be his last press conference, the risks are that he errs on the hawkish side."

"The positive dollar reaction in a hawkish surprise could be exacerbated by a hit to US equities, which will incidentally face a key test today with earnings releases from Alphabet, Microsoft, Amazon and Meta."

"Ultimately, that USD recovery proved rather short-lived, and we suspect month-end flows played a role. Today, we’ll be waiting for any follow-up from Tehran after President Trump claimed that Iran is in a “state of collapse” and wants to reopen the Strait of Hormuz as soon as possible. At the same time, the Wall Street Journal reported that Trump has instructed officials to prepare for an extended blockade of the Strait."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

DBS Group Research economist Radhika Rao notes that India’s 10Y bond yield is moving back towards 7% as Brent Oil trades above $110 and markets price tighter policy. She highlights resilient real economy data, with industrial production and Purchasing Managers' Index (PMI) readings holding up despite supply shocks. Rao also flags Indian Rupee (INR) weakness, rainfall risks and ongoing vulnerability of INR assets to volatility.

Yields, INR and growth resilience

"INR 10Y bond yield headed back towards 7% this week, hardening in response to Brent holding above $110pb, and markets pricing in the likelihood of tighter rates going forward."

"The OIS [Overnight Indexed Swap] market witnessed significant moves, with the 1Y gauge pointing to a near reversal of rate cuts undertaken in the past year, despite the RBI [Reserve Bank of India] signaling a preference to look through temporary price pressures, if the second order impact is contained and core measures stay anchored."

"Adding to energy developments was the IMD’s [India Meteorological Department] forecast of deficient rainfall this summer, posing potential upside to ex-cereal food inflation."

"The INR erased gains driven by NOP [Net Open Position] changes and is back on a gradual depreciating bias towards mid-94 handle, attracting counter intervention bids, not helped by a subdued portfolio flows outlook."

"Overall, until clear signs of a resolution to the US–Iran conflict emerge, INR assets are expected to stay vulnerable to volatility and downside risks."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)