U.S. Industrial Production, Capacity Utilization, EU CPI

The EUR/USD pair traded with a strong upside in line with the global trend that the U.S. dollar weakened. For now it seems that the new toolkit introduced by the European Central Bank (ECB) to help the cohesion of European sovereign debt markets as it held an emergency meeting on Wednesday seemed to have some impact with the spread between some of the most solid countries’ securities like Germany and Netherlands and on the other side Italy and Spain tightened with the Italian 10 year yield falling again below four per cent and the corresponding yield in Spain declined below three per cent.

Many analysts and investors see the measures by the ECB as the bare minimum and there are voices asking why it is still intending to stick to a timetable to hike rates at a time when almost all major Western central banks started hiking.

On Friday eurozone CPI data for May can be expected with expectations that the preliminary rate of inflation at 8.1% disclosed at the end of May will be confirmed.

The Swiss franc (CHF) was one of the most volatile currencies with the USD/CHF rate declining from a value around par by around three per cent within just one day. The Swiss National Bank (SNB) explained its unexpected move to raise interest rates by 50 bp for the first time since 2007 with the rising rate of inflation. Markets did not expect such a significant move as in the monetary policy situation assessment in March the central bank did not even mention rate hikes but now says that it cannot exclude the possibility of further rate hikes in the future. The central bank also clarified that it is ready if necessary to become active in the foreign exchange markets.

While the SNB remains optimistic that GDP growth will remain steady at 2.5% this year, the inflation forecast was revised from the March assessment expecting an inflation amounting to 2.8% in 2022 compared to 2.1% expected three months ago. Though there is the expectation that the rate of inflation will fall below two per cent per annum starting next year.

Following the monetary policy decision by the Bank of Japan (BOJ), the USD/JPY rate strongly reversed course and traded higher. Though at this time the rate is still somewhat below this week’s high that was achieved on Tuesday which was also the highest rate in this pair since the 90s.

Reuters writes that the decision by the Japanese central banking authority to keep interest rates unchanged was widely expected, though given the rapidly changing approach at practically all major developed countries’ central banks there was still possibly some hope that the policy could be amended. The BOJ also clarified that while a steady currency was important for it to attain targets on inflation, it will not be the focus of its policies.

Major stock market indices in the U.S. were deep in the red, falling to a new low in this bear market and clearly undoing any recovery from the trading session on Wednesday when the Federal Reserve Bank announced its position on monetary policy and the economy in general.

At its daily low, the US 30 index was trading at levels seen before the impact of the pandemic in early 2020, while other major indices like the US 500 and US Tech 100 are for now trading well above their respective record attained at that time.

Stocks of companies in the travel sector were disproportionally affected by the downturn, such as the Airline Industry ETF (-6.05%) and especially cruise ship companies like Norwegian Cruise Line (-11.68%), Carnival (-11.18%) and Royal Caribbean (-11.64%) all leading the list of worst-performers among the components of the S&P 500 index.