Daily Market Update

Dollar Suffers As Risk Rallies 

May 17, 2022

A wave of heavy risk sentiment has global equities soaring and has weakened the U.S. dollar. 

Overview

Some argue that global inflation may have peaked as the reason for today’s pop, others point to the possibility of China easing some of its lockdown measures.  It could simply be the case of investors buying the dip.  Regardless, the U.S. dollar is under duress. The Bloomberg Dollar Spot Index is down 0.6%, including a 1.2% decline against the British pound.Disappointing data released this morning was not enough to derail the risk rally.  U.S. April Retail sales rose 0.9%, missing estimates of a 1.0% gain.  However, sales excluding auto sales rose 0.6%, slightly better than forecast.  March sales were upwardly revised, taking out some of the sting out of the April headline number.  Later, industrial production will cross the wire.There are also six different Federal Reserve members speaking throughout the day.  Fed Chairman Powell will be interviewed live during a Wall Street Journal event at 2 p.m., which will grab the most attention.

 

What to Watch Today…

  • Fed’s Powell interview at 2 p.m. 

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EUR

The Euro rallied nearly 1.0% against the U.S. dollar overnight, marking its third straight day of gains.  The Euro is benefiting from a generally weaker dollar in the face of stronger risk sentiment.  However, the common currency got an extra boost as European Central Bank member Klaas Knot was the first ECB official to suggest a 50-basis point interest rate hike might make sense in the future.  Knot is traditionally one of the more hawkish policymakers, but the comments caused money markets to increase bets on tighter monetary policy, slightly closing the gap with U.S. expectations. European Central Bank President Christine Lagarde will speak at 1pm EST.

 

GBP

The British pound is up 1.2% this morning.  Like its G10 partners, the sterling is benefiting from a deep dollar sell-off.  In addition, strong economic data added to the sterling’s momentum.  Wages in Britain saw strong growth.  Average weekly earnings popped 7.0% in the first quarter, according to the Office of National Statistics.  The print beat the 5.4% predicted by economists.  Despite today’s increase, the sterling is down 4.0% against the greenback over the last thirty days.

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