The US dollar faced broad declines on Friday and extended its losses against several major currencies on Monday following a disappointing US employment report. April saw the fewest job gains in six months, coupled with a drop in annual wage growth below 4.0% for the first time in three years.

The weakening labor market spurred investors to increase their bets on rate cuts, especially after Federal Reserve Chair Powell hinted at a leaning towards interest rate reductions. Fed funds futures now imply an almost 85% likelihood of a quarter-point cut in September, with expectations for a total of 45 basis points worth of cuts by year-end.

Comments from Fed officials John Williams and Thomas Barking, echoing Powell’s stance against rate hikes and suggesting potential rate cuts, further bolstered market sentiment towards rate reductions.

In the absence of major US data, attention today turns to a speech by Minneapolis Fed President Neel Kashkari, known for his hawkish views. Traders await his perspective on interest rates, as confirmation of a dovish stance could lead to further downward pressure on the dollar, prompting investors to adjust their rate path expectations accordingly.

Richmond Federal Reserve (Fed) President Thomas Barkin made headlines once again on Monday, addressing economic conditions in the US and fielding audience questions during a speech in South Carolina as a voting member of the Federal Open Market Committee (FOMC).

Here are the key highlights from Barkin’s speech:

• Business contacts indicate that the labor market is gradually returning to normalcy, although certain sectors are still in the process of catching up.
• Metrics for the neutral interest rate have increased, yet current policy continues to feel restrictive.
• Barkin believes that the current interest rates are sufficiently restrictive.
• He perceives the risks as tilted towards heightened inflation.
• Adjusting price-setters takes time, contributing to the persistence of recent data showing stubborn trends. Barkin expresses less optimism regarding the timeline for bringing inflation under control.
• He anticipates that the Fed will need to moderate demand to effectively combat inflation.
• Barkin has not observed evidence indicating that inflation is on a sustainable path.
• Despite ongoing concerns about inflation, GDP growth remains robust, with the Fed now placing increased focus on the job market.

Yen Struggles to Continue its Uptrend After a Strong Previous Week

The yen commenced the week on a weaker note following its strongest performance since early December 2022, attributed to suspected intervention by Japanese authorities on two occasions.

Despite the Japanese currency’s impressive 5.25% gain since the initial intervention prompted by the dollar/yen breach of 160, this week’s decline underscores doubts regarding the efficacy of intervention alone in reversing its trend.

While prospects for further intervention from Japanese authorities persist, sustaining a yen recovery may necessitate a shift in the Bank of Japan’s (BoJ) communication strategy. Disappointment arose from the BoJ’s recent meeting, where it refrained from signaling the likelihood of an imminent rate hike, contrary to expectations for a potential move during the summer.

GBP: Will the BoE Make Any Changes in Their Monetary Policy?

The Bank of England’s third meeting for 2024 is scheduled for Thursday, with the press statement, meeting minutes, and Monetary Policy Report set to be released at 11:00 GMT, followed by a crucial press conference 30 minutes later.

Market expectations anticipate no adjustment to the current bank rate of 5.25%, with attention focused on three key factors: inflation projections outlined in the Monetary Policy Report, voting patterns, and the overall tone of the press conference.

Economic conditions have shown mixed signals since the previous meeting in March. Despite some positive indicators, such as growth indications in the first quarter highlighted by PMI surveys and resilience in the housing sector despite higher interest rates, inflation remains a significant concern for the Bank of England. The core CPI indicator has remained above 4% for 28 consecutive months, reflecting persistent inflationary pressures, while robust wage growth adds to the inflationary backdrop.

Forecasts slated for release at 11:00 GMT are highly anticipated, particularly after the February Monetary Policy Report projected a decline in headline inflation to 2.3% by the end of 2026. Any deviation from this projection could impact market expectations and influence the likelihood of future rate cuts.

The possibility of hawks advocating for a rate hike persists, with members Mann, Haskel, and Greene previously advocating for increases. However, recent trends easing inflationary pressures may keep them aligned with the majority decision.

Despite recent economic developments and the likelihood of the Fed maintaining its stance on rate cuts, the Bank of England is unlikely to shift towards a dovish stance. Governor Bailey is expected to maintain a cautious tone at the press conference, particularly given uncertainties surrounding developments in the Middle East, potential impacts on oil prices, and the Fed’s stance.

While April’s inflation figures may reflect temporary relief due to lower energy prices compared to the previous year, hawks within the Bank of England remain steadfast in their belief that inflation will gradually pick up, cautioning against premature decisions.

The Reserve Bank of Australia Hold the Rates

Governor Michele Bullock of the Reserve Bank of Australia (RBA) is currently fielding questions from reporters in the wake of the May monetary policy announcement, which introduces a new reporting format for the central bank.

In its latest policy meeting, the RBA opted to maintain the policy rate at 4.35%, marking the fourth consecutive meeting without adjustment. However, the central bank refrained from committing to any specific direction for the next interest rate adjustment.

Key highlights from the RBA press conference include Bullock’s emphasis on vigilance regarding inflation risks and the belief that current interest rates are conducive to steering inflation back towards target levels. Acknowledging the volatility in economic data, the RBA asserts a commitment to taking a longer-term perspective.

Bullock underscores the importance of fostering employment growth while remaining attentive to associated risks, affirming the RBA’s readiness to adjust policy as necessary. Additionally, attention is drawn to the government’s awareness of the need to prevent budgetary measures from exacerbating inflationary pressures.

Regarding future rate adjustments, Bullock remains noncommittal, cautioning against overinterpretation of technical rate forecasts and emphasizing the importance of maintaining balance in risk assessment.

Market pricing is deemed reasonably balanced, though Bullock stresses the imperative of remaining vigilant, as the potential costs of grappling with higher inflation outweigh those associated with managing lower inflation levels.

Bitcoin is Supported by the Fed

The leading cryptocurrency has faced recent selling pressure, particularly following the successful completion of its fourth halving event on April 19. With both the launch of spot-Bitcoin ETFs and the halving event now in the past, crypto investors seem to lack positive catalysts for price appreciation.

Bitcoin’s future trajectory appears to hinge on the Federal Reserve’s interest rate decisions, as surprising upside inflation data shifts expectations from six rate cuts earlier in the year to fewer than two at present. Following Wednesday’s dovish FOMC meeting, which reintroduced the possibility of at least one 25 basis point rate cut, Bitcoin experienced a rebound from its recent two-month low of $56,483.

Additionally, Bitcoin has benefited from the recent upsurge in the stock market, driven by Apple’s announcement of a significant share buyback program. However, Bitcoin bulls face a tough challenge in reclaiming the crucial $60,000 psychological level, and a failure to do so could exacerbate the recent downward trend.

The launch of six spot Bitcoin and Ethereum ETFs in Hong Kong earlier in the week generated anticipation of increased demand from Asian investors. However, these vehicles failed to attract the expected inflows, leading to disappointment in the market. BlackRock’s report of outflows from its spot Bitcoin ETF further underscores the waning demand for such investment options. Looking ahead, market focus shifts to the approval of spot-Ethereum ETFs, seen as the next potential growth driver in the sector.