GBPUSD braces for weekly gain amid US Dollar pullback, hawkish BoE talks

Cautious optimism prevails in the market early Thursday as traders anticipate lesser economic damage due to the Israel-Iran war, mainly due to the global leaders’ rejections to support Israel. Also, soothing conditions in Gaza and hopes of witnessing more humanitarian reliefs allowed traders to remain positive, especially amid a light calendar and a lack of catalysts from the US.

As a result, the US Dollar Index (DXY) remains pressured after reversing from the yearly high the previous day, which in turn allows EURUSD and GBPUSD to recover from the lowest levels since November despite no major positives at home. That said, USDJPY also stayed defensive after reversing from the highest level since 1990 on Wednesday whereas AUDUSD and NZDUSD managed to cheer softer US Dollar and increasing commodity prices to mark a notable recovery.

Gold price picks up bids to reverse the previous day’s losses while Crude oil licks its wounds after falling the most since January.

It should be noted, however, that BTCUSD and ETHUSD fail to cheer the US Dollar’s retreat and stay pressured as crypto traders prepare for Bitcoin halving amid cautious markets.

Following are the latest moves of the key assets:

• Brent oil seesaws at the lowest level in a fortnight, indecisive near $87.60 at the latest.
• Gold price reverses the previous day’s losses by rising 0.80% intraday to $2,380 by the press time.
• The USD Index drops more than half a percent to 105.75 as we write.
• Wall Street closed with minor losses but the Asia-Pacific stocks pare weekly losses of late. Further, European and UK shares lack clear directions during the initial trading hour.
• BTCUSD and ETHUSD both print minor losses to around $61,000 and $2,960 at the latest.

US Dollar traces yields to retreat amid light calendar…

The US Dollar pares weekly gains amid mixed comments from the Federal Reserve (Fed) officials and due to an absence of major negatives from the geopolitical front. That said, Israel showed readiness for a deal on Gaza but showed readiness to attack Iran. However, a lack of global support to counter Tehran could stop Jerusalem from roiling the geopolitical sentiment.

On Wednesday, the European Union (EU) Council of national government leaders said it will take further restrictive actions against Iran.

Apart from the Israel-Iran news, updates from the Group of Seven Nations (G7) meeting also challenged the previous risk-off mood and weighed on the US Dollar, despite offering no major incentives. In its latest update, the G7 mentioned that the central banks remain firmly committed to achieving price stability while adding, “Global economy has shown resilience to multiple shocks but growth prospects remain below historic averages.”

It should be noted, however, that the International Monetary Fund (IMF) cited surging debts of the US and China as risks for the general public finances.

Further, US President Joe Biden called for tripling of the tariffs on China steel and bolstered fears about the Sino-American trade wars, which in turn challenged the market’s cautious optimism and put a floor under the US Dollar, which in turn weighed on the equities.

Talking about the Fed speakers, Cleveland Fed President Loretta Mester said, “Inflation is higher than expected, need more confidence on trajectory.” Further, Fed Governor Michelle Bowman mentioned that the Progress on inflation has slowed and perhaps stalled. Additionally, the Fed Beige Book stated, “Contacts expect inflation to remain steady at a slow pace, although some manufacturers in a few Districts see potential upside risks to near-term inflation, both in input and output prices.”

Amid these plays, the US Dollar Index (DXY) snapped a five-day winning streak while retreating from the yearly high, which in turn allowed major currencies and commodities to pare weekly losses. That said, Gold price remains sidelined, mildly bid near the record high whereas crude oil traders lick their wounds after witnessing the black gold’s biggest daily slump since early January, mainly due to a higher build in crude oil inventories, as well as receding supply crunch fears.

Apart from the US Dollar’s retreat, hawkish comments from the European Central Bank (ECB) officials also allowed EURUSD to recover from a 5.5-month low while posting the biggest daily jump in a fortnight. That said, ECB President Christine Lagarde said, “It is obvious that exchange rates may have an impact on inflation.” Her comments were contrasting the previous day’s statements that showed readiness to cut rates soon. Not only Lagarde, Bundesbank Chief Joachim Nagel, Portugal’s Central Bank President Mario Centeno, and Governing Council member Isabelle Schnabel also appeared hawkish and helped the EURUSD bulls.

On the other hand, Bank of England (BoE) Governor Andrew Bailey mentioned that the effect of the Mideast conflict is less than feared. The policymaker also added, “We are pretty much on track for where we thought we would be in February on inflation.” With this, the GBPUSD price managed to print a notable rebound from the yearly low, rising for the second consecutive day by the press time.

USDJPY also extends the previous day’s retreat from a multi-year high amid the US Dollar’s retreat and a pullback in yields, as well as mixed headlines surrounding Japan. That said, Bank of Japan (BoJ) board member Asahi Noguchi defended ultra-loose monetary policy in his early-day comments while Japan's vice finance minister for international affairs Masata Kanda showed readiness for market intervention to defend the Yen amid excess volatility.

Elsewhere, The Australian Dollar (AUD) rises the most among the G10 currencies versus the US Dollar despite mixed employment details from Australia. The reason could be linked to a notable improvement in the quarterly readings of the National Australia Bank’s (NAB) Business Confidence data, from -6 to -2. Also allowing the Aussie pair to extend the latest recovery could be the headlines from quarterly prints of the Reserve Bank of Australia (RBA) Bulletin showing economic optimism.

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

Mid-tier data, central bankers will entertain traders…

Looking forward, the weekly prints of the US Jobless Claims and the monthly outcomes of the Philadelphia Fed Manufacturing Index will join central bankers’ speeches from Europe, the UK, and the US to entertain market players. It’s worth noting that a lack of major data/events will restrict market moves but comments from Fed policymakers will be important to watch ahead of the two-week blackout period ahead of May FOMC. Hence, the latest consolidation in the US Dollar and commodity prices is likely to prevail unless any major surprises erupt from the stated catalysts, which is less likely.

May the trading luck be with you!