In this May 2018 FX markets monthly outlook, The U.S. dollar emerged from a spell of selling as the greenback managed to emerge as one of the top currencies with gains last month in April. The USD was only second to the Canadian dollar which advanced 0.41% and was the top performing currency for the month in March.
The rebound in the U.S. dollar came amid a modestly improving economic landscape which leads to the conviction that the central bank will pursue its monetary policy tightening in the months ahead.
Among the biggest losers were the Swiss franc which lost 4.05% on the month and the Swedish krone which fell 3.37% on the month. Gold and the Japanese yen which posted strong gains just the month before were also seen easing back.
The month ahead: May 2018
Following the start of the first month of the second quarter, investors will be focused on the quarterly GDP performance across the various G7 economies. From a monetary policy perspective, we do not expect to see any big changes to interest rates coming this month.
However, the central bank economists will be closely monitoring the developments from the first quarter. Here’s a quick preview of the main events to look forward to in the month of April.
BoE – To hike rates or not?
The Bank of England’s monetary policy meeting will be held on Thursday, May 10th. This is likely to be a closely watched event as the markets speculate on whether the Bank of England will be able to follow through with its previous comments about a rate hike at the May meeting.
Economic data from the UK has been weakening in the past months. Although inflation has shown signs of easing as consumer prices fell to 2.5% on the year in March, other economic indicators have also signaled a slowdown in business activity. One of the sectors was also seen posting a contraction in March.
While falling inflation is good news for central bank officials, wage growth however did not manage to capitalize on this. The most recent data suggested that wage growth picked up only modestly at 2.8% on the year. During the same period, the UK’s consumer prices averaged around 2.9%. The data indicated that wages continued to lag behind.
The Bank of England had previously signaled another rate hike in May. With inflation easing back, but still above the BoE’s 2% target rate, there is scope that BoE will push with another rate hike at this month’s meeting.
Oil prices likely to stay volatile
Crude oil prices have remained in the news for the most part of April, largely due to the global events such as Syria and the ongoing talks between the United States and its allies on Iran.
The U.S. President Trump who called the Iran nuclear deal unfair has been taking a tough stance to the point of revoking the deal and imposing sanctions on Iran once again. With the turmoil in Syria, oil prices got a boost amid a slowdown in crude oil production.
Additional uncertainty of potential sanctions on Iran could further heighten investor concern pushing oil prices higher. The U.S. administration and its allies including France, Russia are expected to take a decision in the early part of this month.
If the U.S. led talks decide to impose sanctions on Iran it could cut the country’s oil supply off the global grid further leading to a tightening of supply in the international oil markets.
Later this month, OPEC member nations are expected to meet on May 21. This comes after the previous meeting in January this year. OPEC had previously signaled its intentions to continue with cutting oil production until end of 2018.
