April 5th – Daily FX Fundamental Update

Market overview

In today’s market update:

– The U.S. proposes new sanctions on Russia

– The EU suffers from higher price pressure

– Gold is losing for Fed rates bets

FOREX

The Dollar Index traded marginally lower at 98.955, just below the one-week high of 99.083. The dollar has been drifting this week so far as investors await the arrival of the minutes from last month’s Federal Reserve policy meeting, due on Wednesday.

EURUSD

The European Union decided not to take a big decision regarding the sanctions on Russia for its invasion of Ukraine. Sources indicated that the new package of sanctions will allow oil and natural gas to flow freely, generating nearly $1 billion a day in export revenues for Russia. The common currency traded 0.1% higher this morning around 1.0984.

GBPUSD

Meanwhile, in the UK, a longer Russia-Ukraine dispute could resume to ramp up price stress and tense the squeeze on household incomes. However, experts believe that further policy tightening might be suitable to tame inflation. The sterling pound is finding demand as a safer alternative to the shared currency amid heightened concerns over an economic slowdown in the euro area. The cable didn’t have a difficult time holding above 1.3100.

AUDUSD

Elsewhere, Aussie gained 0.9% to 0.7607, jumping to a nine-month high, after the Reserve Bank of Australia (RBA) left its benchmark interest rate unchanged at 0.1% at its latest policy meeting, but indicated that rate hikes were coming.

USDJPY

Japanese Yen pair gained ground against the greenback to 122.58. The USDJPY pair was sinking further from the multi-year high of 125.10 reached in late March, while the Chinese Yuan was flat at 6.3638.

Indices

U.S. stocks opened marginally lower Tuesday, with investors taking a cautious stance ahead of the minutes of the last Federal Reserve meeting, the start of the new earnings season, and the continuing war in Ukraine. The Dow Futures contract was down 90 points, or 0.3%, S&P 500 Futures traded 10 points, or 0.2%, lower and Nasdaq 100 Futures dropped 35 points or 0.2%. The tech-heavy Nasdaq Composite led the way on Monday, ending up 1.9%, helped by Twitter stock gaining nearly 30% after billionaire Elon Musk took a 9.2% stake in the social media giant.

Market participants focus on Wednesday’s release of Fed minutes of the March meeting. Expectations are growing that the Federal Reserve (fed) will move more aggressively at its meeting in May, after hiking by 25 basis points in March, especially after a jobs report that showed an unemployment rate falling to a new two-year low of 3.6%.

European stock markets fluctuated today, with investors outlining the possibility of more sanctions against Moscow. More sanctions could lead to higher commodity prices and fuel inflation concerns. The German DAX traded 0.4% higher, the CAC 40 in France rose 0.1% while U.K.’s FTSE 100 dropped 0.1%. The European economic data slate Tuesday includes several March manufacturing and services PMI releases from the region, while French industrial production slumped 0.9% in February, a sharp drop from January’s revised 1.8% gain.

Metals

Gold edged lower on Tuesday as higher U.S. Treasury yields and expectations of aggressive interest rate hikes by the Federal Reserve dimmed the appeal of non-yielding bullion. Spot gold was down 0.2% at $1,929.43 per ounce, trading in a narrow range. While gold futures eased 0.1% to $1,932.

Yields on 10-year Treasury Inflation-Protected Securities, or real yields, rose to a near two-year high on Tuesday. Rising U.S. interest rates raise the opportunity cost of owning non-yielding bullion.

Spot silver rose 0.6% to $24.65 per ounce, platinum fell 0.6% to $980.61, and palladium gained 1.1% to $2,298.99.

Energy

U.S. West Texas Intermediate crude oil futures traded higher on Tuesday below their overnight high. The triggers after the early gain are reports that the United States and Europe were planning new sanctions on Russia. Meanwhile, market participants continue to express concerns over tighter global supply after Iran’s nuclear talks with Western powers stalled.

The American Petroleum Institute reported its weekly inventory data, after recording a drop of 3 million barrels last week. WTI crude oil futures traded0.87% higher at $104.18, down from an intraday high of $105.59. Meanwhile, the Brent contract rose 1.2% to $108.82.