Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US shares hit as growth slows, inflation stays hot
The US’s Dow Jones index ended April with its worst monthly performance since September 2022 as rising bond yields, geopolitical fears and worries about the US Federal Reserve’s ability to cut interest rates hit sentiment.
Overnight, markets took another step lower, with the Dow Jones down 1.5% and the Nasdaq falling 1.9%.
US data releases overnight painted a gloomy picture of slowing growth and higher inflation.
From a growth perspective, the Chicago PMI was reported at 37.9 versus the 44.9 expected while the Conference Board consumer confidence fell from 103.1 last month to 97.0 in April.
However, ahead of tonight’s Federal Reserve decision, the higher-than-expected employment cost index was the real worry. The ECI was up 1.2%, above the 1.0% expected, and was another sign that US inflationary pressures remain elevated.
USD index back at six-month highs
The ongoing worries about the Fed’s next move sent the US dollar sharply higher with the USD index up 0.6% overnight and closing at the second highest level since 1 November.
The commodity currencies, recently the beneficiaries of last week’s rallies, saw the biggest losses.
The AUD/USD and NZD/USD both fell 1.5% while USD/CAD gained 0.9%.
The euro and British pound also lost ground although outperformed most other major currencies.
Asian FX was weaker with the USD/JPY shaking off Monday’s intervention from Japanese authorities recover losses and gain 0.9%. The USD/SGD climbed 0.5% while USD/CNH was up 0.2%.
Fed decision to be critical
From here, financial markets are braced for impact ahead of tonight’s critical Federal Reserve decision.
The Fed decision is due at 4.00am Thursday with the chair Jerome Powell’s press conference at 4.30am (AEST).
After a sequence of higher US inflation and stronger jobs numbers this year, markets now assume the Fed must step back from its projections for three rate cuts this year. In fact, according to the CME’s FedWatch tool, markets now see a one-in-four chance of no cut.
The key question tonight will be how markets react to the Federal Reserve chair Jerome Powell’s press conference. Financial markets have clearly moved ahead of the Fed – but will the Fed push back and hold the line or admit the environment has changed?
Aussie, kiwi tumble to low end of the range
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 29 April – 3 May
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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