Central banks remain in wait-and-see mode

Danske Research Team Danske Bank A/S

The global Covid-19 situation remains challenging. New global coronavirus cases rose for a ninth consecutive week by a record 5.7 million, as a 52% surge in India outweighed declines in most regions. Still, on a positive note the vaccination drive in Europe is picking up pace and the US has softened its stance on vaccine nationalism, signalling a willingness to export its 60 million AstraZeneca doses, likely to India.

A range of central bank meetings this week brought little change on the policy front. Despite the Fed turning more upbeat on the economy, FedchairPowell reiterated that it is too early to talk about tapering. Based on our very positive US macro outlook, we continue to see the Fed moving in a more hawkish direction later this year when more positive US macro data start to arrive(see Fed Monitor: Review -"It is not the time to start talking about tapering", 28 April). US rates resumed their rise this week after the recent consolidation, while the mood in global equity markets remained constructive, helped by a strong earnings season. EUR/USD rose above 1.21 on the dovish Fed comments.

The Riksbank did does not rock the boat either. It kept the repo rate path unchanged at zero, left the door open to go negative and re-iterated that the SEK will appreciate only slowly from here, actually raising the trajectory, indicating a somewhat slower appreciation pace, seeFlash Comment Riksbank April 2021, 27 April 2021.

The Bank of Japan(BoJ) kept its QQE with yield curve control unchanged with the target for the short-term interest rate at -0.1% and for 10-year bond yields around 0%. The BoJ also published a new outlook report, where 2023 now marks another year of not reaching the 2% inflation target and the 2021 forecast has been trimmed following new lockdowns in Japan. The FX reaction to the decision was muted but as BoJ added another year of not reaching the inflation target to their outlook, the Yen weakened after four weeks of pure strengthening.

We have taken a deep dive into German politics ahead of the federal election on 26 September. Most importantly, The Green Party is likely to be king-makers in any future governing coalition, opening up the potential for a more relaxed fiscal stance down the line. However, the debt brake will still limit expansionary fiscal policies.

Next week the April US jobs report and ISM manufacturing/services is due for release and we expect strong readings on both. Amore quiet week awaits us in the euro area, where German industrial production figures for March could surprise on the upside given upbeat business surveys and lackluster hard data so far in Q1. The Bank of England(BoE)meeting will not bring significant policy changes in our view, as BoE remains in wait-and-see mode (although updated forecasts on the economy and inflation are released). Instead, it is worth keeping an eye on the Scottish election (as well as UK local elections) on Thursday that could have important implications for the likelihood of another Scottish independence referendum and trigger some volatility in the GBP. In China, we are looking forward to the April Caixin PMI, which could show a rebound due to stronger US exports.

Download The Full Weekly Focus

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.