GBPUSD extends pullback from 10-week high as US Dollar traces firmer yields

The return of full markets joined upbeat US data and cautious mood to underpin the US Dollar’s recovery on Tuesday, allowing the Greenback to stay firmer early Wednesday. In doing so, the Greenback also cheers firmer Treasury bond yields amid concerns that the Fed will hesitate to announce more than one interest rate cut in 2024.

With this, the US Dollar Index (DXY) rose for the first day in three but failed to weigh on the EURUSD pair amid mixed catalysts. That said, GBPUSD couldn’t cheer positive clues for the UK Retail Sales while USDJPY rose to a multi-day high before easing from 157.40.

AUDUSD struggles to find directions after retreating from a one-week high the previous day as better-than-forecast Australian inflation data join mixed construction work figures. NZDUSD, however, remains pressured as a lack of upbeat New Zealand (NZ) details challenges the Reserve Bank of New Zealand’s (RBNZ) hawkish bias, especially amid mixed headlines about China.

Crude Oil marked the biggest daily jump in nearly four months amid news suggesting supply crunch and increase in energy demand, especially from China. The same helped Gold price to ignore the US Dollar rebound and remain firmer, despite the latest retreat.

On the other hand, BTCUSD and ETHUSD remain dicey while printing intraday gains as traders digest news suggesting a record inflow into the digital assets and the US SEC’s mixed view for the cryptocurrencies.

Following are the latest moves of the key assets:

• WTI Crude oil struggles to extend a three-day uptrend, printing mild losses near $80.00 after rising the most since early February the previous day.
• Gold also snaps a three-day winning streak by falling back to $2,352, down 0.30% intraday by the press time.
• The USD Index defends the previous day’s recovery by posting mild gains around 104.70 at the latest.
• Wall Street closed mixed and weighed on the Asia-Pacific shares. That said, British and European shares lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both print mild gains near $68,500 and $3,870 as we write.

US Dollar recovers ahead of key data/events…

On Tuesday, the US Dollar Index (DXY) snapped a two-day losing streak while bouncing off the lowest level in a fortnight after witnessing upbeat prints of the Conference Board’s (CB) Consumer Confidence measure for May and a strong run-up in the US Treasury bond yields. Also adding strength to the DXY’s recovery were the upbeat prints of the US housing numbers and mixed sentiment. It should be noted that the hawkish commentary from the Federal Reserve (Fed) officials also allowed the US Dollar to regain upside momentum ahead of today’s Fed Beige Book and Friday’s US Core PCE Price Index, also known as the Fed’s preferred inflation gauge.

While the US Dollar was recovering, EURUSD hesitated to fall as most of the European Central Bank (ECB) officials kept suggesting a pause in the rate cuts after taking the first move in June. Also challenging the Euro bears were concerns that the risk of a hard landing in the Eurozone is receding of late. Meanwhile, GBPUSD initially jumped to the highest level since late March before posting a daily close, extending the loss by the press time, as traders cheered upbeat UK Retail Sales clues before respecting the US Dollar’s rebound. Reuters said on Tuesday that the Confederation of British Industry's (CBI) monthly retail sales balance, a gauge of sales versus a year ago, recovered to +8 this month after tumbling to -44 in April. In doing so, the UK’s retail sales precursor marked the strongest print since December 2020. However, the quarterly measure of selling price inflation in retail slowed to its lowest since August 2020. 

Alternatively, USDJPY jumped to the highest level in four weeks before posting the intraday losses so far early Wednesday. The reason for the Yen pair’s retreat could be linked to comments from Bank of Japan (BoJ) board member Seiji Adachi who said, “If excessive yen falls impact inflation, policy response becomes option.”

Talking about the risk headlines, Israeli forces kept marching deeper into Rafah despite international calls to halt the offensive. The same joined calls for more energy demand from China, mainly due to more stimulus measures and hopes of witnessing upbeat China growth, to allow the WTI Crude Oil to jump the most since early February. It’s worth noting that the International Monetary Fund (IMF) revised its economic estimations of China's 2024 GDP growth from 4.6% to 5.0% while citing strong Q1 economic growth data and recent policy measures. Like crude oil, the Gold price also printed a three-day winning streak on mixed sentiment before retreating from the 10-day Exponential Moving Average (EMA).

It should be observed that the upbeat performance of commodities failed to defend the Antipodean buyers as mixed data from Australia and New Zealand challenged buyers of the AUDUSD and NZDUSD pairs. Further, the USDCAD recovered from a one-week low and is presently marking the second-biggest move among the G10 currency pairs, after NZDUSD, even as Canadian Industrial Production and crude oil marked welcome figures for the Canadian Dollar (CAD). The CAD’s weakness could be linked to the Bank of Canada’s (BoC) preference for rate cuts amid mixed prints of the headline economic data.

• Strong buy: USDCAD, USDJPY, US Dollar
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold
• Sell: DAX, FTSE 100, BTCUSD, EURUSD

Fed’s Beige Book, German inflation…

While the recently firmer US data and hawkish Fed bets can keep the US Dollar on the front foot, as well as exert downside pressure on the riskier assets like commodities and Antipodeans, today’s Fed Beige Book and Germany’s inflation data will be the key to watch intraday direction. Also important to watch will be the headlines surrounding the geopolitical woes emanating from China and the Middle East. Further, public speeches from the mid-tier Fed officials, the Richmond Fed Manufacturing Index for May and the weekly Oil inventories per the American Petroleum Institute (API) will provide additional guidance to the traders. Above all, Friday’s US Core PCE Price Index will be the key for market players to watch for clear directions.

May the trading luck be with you!