Forex Today: Dollar strengthens on mixed markets, commodities under pressure

Market participants will continue to digest the latest inflation numbers across the globe and the resurgence of US bank fears. Regarding data, the New Zealand Business PMI is due. The Reserve Bank of Australia will release its inflation expectations report for the second quarter. Later on Friday, the UK will report GDP.

Here is what you need to know on Friday, May 12:

The US Dollar rose on Thursday on the back of cautious markets and a decline in commodity prices. The Greenback turned positive for the week with the DXY rising to the 102.00 area. US economic data pointed to a slowdown in inflation (Producer Price Index below expectations) and to a gain in the labor market (Initial Jobless Claims at highest since October 2021).

US bond yields dropped sharply but then rebounded. The correlation between yields and the US Dollar weakened somewhat on Thursday. The only report from the US on Friday will be the Consumer Confidence. The debt ceiling impasse and the banking system remain on the focus.

Wall Street posted mixed results on Thursday. The Dow Jones dropped 0.66% while the Nasdaq gained 0.18%. European stock markets also finished mixed. Equity prices continue to move sideways while the currency market appears on the verge of an extension of the recovery of the US Dollar. 

EUR/USD dropped sharply, hitting levels under 1.0900. It is trading at the lowest in almost a month, near 1.0900 and close to an important support around 1.0890. The short-term outlook has turned negative.
The Bank of England, as expected, raised its key interest rate by 25 basis points, to 4.50%. The vote was 7-2, with two members voting for no change. The Pound was among the worst performers affected by BoE Governor Bailey comments on easing inflation. GBP/USD fell from above 1.2600 to sub 1.2500 levels while EUR/GBP surged from 0.86860 to 0.8735. The UK will report GDP on Friday. 

Analysts at Danske Bank wrote: 

We now expect another hike of 25bp at the June meeting. In order for BoE to keep policy rates unchanged we believe that we would have to see data releases prove considerably worse than what we currently pencil in. Our call is fairly closely in line with market pricing (33bp until September). Markets are pricing in a likelihood for a cut in December (-6bp). We still believe that the first rate cuts will not be delivered before Q2 2024.

USD/JPY hit weekly lows but then rebounded during the American session, ending flat around 134.50. The recovery was boosted by the rebound in US yields.

AUD/USD dropped sharply to the 20-day Simple Moving Average (SMA), hitting levels below 0.6700. A consolidation firmly below 0.6700 would increase the bearish pressure, while above, the Aussie could recover. If the decline in commodity prices persists, a deeper slide seems likely.

NZD/USD was affected by the rally of the US Dollar and dropped below 0.6300, erasing weekly gains. The Reserve Bank of New Zealand (RBNZ) will release its Inflation Expectations report, as well as the Business NZ PMI.

USD/CAD rose more than a hundred pips. The rally found resistance at the 20-day SMA, slightly below 1.3500.

Gold flirted with $2,040 and then reversed, falling more than $20 and stabilizing around $2,015. Silver tumbled almost 5%, posting the lowest close in a month, at $24.15. Crude Oil prices lost more than 1%. 
 

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