27 April 2022 – Daily FX Update

Overview

Russia cuts gas supply to EU

Gold dipped

COVID-19 hits harder in China

FOREX

U.S. Dollar

The U.S. dollar posted further gains in early European trade Wednesday, trading at two-year highs on safe haven flows as traders digested slowing global growth, raised geopolitical tensions, and the prospect of more tightening by the Federal Reserve. The Dollar Index traded 0.2% higher at 102.532, recording the strongest level since March 2020 and on the path to its best month since 2015.

This escalation of the geopolitical tensions has added to the reasons traders have chosen to hold the dollar, with strict COVID-19 lockdown in China likely to hit economic growth in the world’s second-largest economy while the Federal Reserve is expected to hike interest rates by 50 basis points in May as it seeks to combat inflation at a four-decade high.

Euro (EURUSD)

The shared currency fell 0.2% to 1.0618, dropping to a five-year low, amid fears for Europe’s energy security, while the weak GfK German consumer confidence index, projected to plunge to a historic low in May, also weighed.

Russia announced plans to halt gas flows to Poland and Bulgaria from amid a standoff over fuel payments. Furthermore, The Russian President has announced that payment from “unfriendly” buyers should be in rubles, while the European Union has responded that would be a breach of sanctions.

Japanese Yen (USDJPY)

The Japanese Yen lost 0.5% to 127.81 against the greenback, near its 20-year low, while the Bank of Japan set to meet overnight.

This central bank has maintained a very accommodating monetary stance, in an opposing direction to the hawkish Federal Reserve, but traders see the risk of policy changes to try and control the currency’s recent weakness.

Indices

U.S. Indices

Though most of the earnings season lies ahead, some investors worry that anything less than stellar results from corporate giants will do little to stem a slide in stocks that left the S&P 500 down 12.4% on the year. The Nasdaq on Tuesday hit its lowest closing level since December 2020 as it lost nearly 4%, bringing it 22% below the all-time high it hit on November 19.

The S&P 500 fell by 2.80%, the Nasdaq tumbled b 3.93%, and the Dow Jones retreated by 2.38%. The S&P has fallen through its February lows, while the Nasdaq is in danger of testing its 4,100 February low. Only the Dow, with its value orientation, is holding steady, albeit in a 1-year sideways range.

European Indices

European stocks traded lower today, as investors digested ramped up geopolitical tensions, a troubled global growth outlook as well as mixed quarterly corporate earnings. The DAX in Germany traded 0.3% lower, the CAC 40 in France fell 0.1%, while the U.K.’s FTSE 100 climbed 0.2%.

Russia-Ukraine tension got heightened after Gazprom, Russia’s state-owned energy giant, confirmed that it has stopped supplies to Poland and Bulgaria.  It’s the first time that Russia has interrupted supplies to EU members in over 40 years of shipping natural gas, caused crude prices to rise and increased concerns about Europe’s energy security.

Asian Indices

Asia Pacific stocks were mostly down this morning amid mixed corporate earnings. Additionally, the latest COVID-19 outbreak in China, and the prospect of aggressive U.S. Federal Reserve monetary policy all indicated a deteriorating economic outlook and dampened investor sentiment. China’s Shanghai Composite was down 0.45%, while Hong Kong’s Hang Seng Index fell 0.73%.

Japan’s Nikkei 225 slid 1.84% and the Australian ASX 200 was down 0.66%, with the country’s consumer price index growing 2.1% quarter-on-quarter and 5.1% year-on-year in the first quarter of 2022.

Metals

Gold prices fell on Wednesday as the U.S. dollar reaches its highest level in more than two years. Spot gold was down 0.6% at $1,893.70 per ounce. U.S. gold futures slid 0.3% to $1,898.60.

Headlines from Russia provided some support to gold as investors sought a safe haven. However, the Ukraine crisis has a bearish effect on bullion.

Spot silver dropped 0.2% to $23.43 per ounce, platinum dipped 1.3% to $920.23, and palladium eased 0.1% to $2,183.36.

Crude Oil

Oil was steady on Wednesday after Russia cut gas supplies to Bulgaria and Poland. Although lingering concerns about Asian coronavirus lockdowns weighing on economic growth and oil demand kept a lid on prices. The International Monetary Fund (IMF) warned on Tuesday that Asia faces a “stagflationary” outlook.

Having dipped into negative territory, Brent crude futures rose 0.3%, to $105.25 a barrel. U.S. West Texas Intermediate crude futures gained 0.1%, to $101.80 a barrel.