Higher Prices Likely For Greenback
STOCK INDEX FUTURES
Stock index futures quickly advanced yesterday when Federal Reserve Chairman Powell in his press conference said officials were not actively considering raising rates by 75 basis points at its June meeting.
Prices are lower today as investors are still facing the most aggressive tightening of U.S. monetary policy since 2000, which was the last time the central bank raised rates by a half-point.
U.S.-based companies announced plans to cut 24,286 jobs from their payrolls in April, which is the most since May last year, and a 14% increase from the 21,387 announced in March, according to Challenger, Gray & Christmas, Inc.
Jobless claims in the week ended April 30 were 200,000 when 178,000 were expected.
Nonfarm productivity in the first quarter declined 7.5% when down 2.5% was anticipated.
The dominant influences remain geopolitical tensions and the hawkish Federal Reserve.
Yesterday the U.S. dollar index fell when Fed Chair Powell all but eliminated the possibility of raising rates by 75 basis points at its June meeting.
However, the greenback is higher today on the belief that if the Fed may not be quite as hawkish going forward other central banks, such as the European Central Bank and the Bank of England, may follow suit and not be as hawkish as well.
Interest rate differential expectations suggest higher prices are likely for the greenback.
The euro currency is lower today, giving back much of yesterday’s gains. Lower prices are likely for the euro currency.
The British pound weakened to its lowest level in almost two years against the U.S. dollar, after the Bank of England at its policy meeting today released a statement that was not as hawkish as some analysts had expected.
The Bank of England raised interest rates to 1.0% from 75 basis points to their highest level since early 2009. The BoE warned the U.K. risks recession alongside double-digit inflation.
The Japanese yen is lower and remains near its lowest level in 20 years. Recent pressure on the yen is linked to the Bank of Japan’s firm commitment to maintain ultra-easy monetary policies, which contrast sharply with other major central banks that are hiking interest rates.
Interest rate differential expectations remain bearish for the Japanese yen and lower prices are likely.
INTEREST RATE MARKET FUTURES
On Wednesday, Federal Reserve officials approved a half-percentage-point interest rate increase, lifting the fed funds rate to a target range between 0.75% and 1.0%, as expected.
The Federal Reserve said it would begin shrinking its $9 trillion portfolio in June.
Lower prices are likely across the board for the interest rate market futures as most major central banks are anticipated to tighten credit policies this year.
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