FX.co ★ 06.05.2924: Powell rules out any rate hikes, but USD on defensive. S&P 500, EUR/USD, Brent crude

Financial markets in Japan and the UK are closed today due to holidays. As for the currency market, forex traders are alert to another intervention by Japan’s monetary authorities to prop up the sapped yen. The fact is that, as a rule, Japanese financial policymakers carry out their interventions during quiet periods on Forex. The stock markets of mainland China opened today on a positive note after five days off. By the way, on Friday, economic leaders of South Korea, Japan, and China said that higher volatility in the forex market is a strong risk factor that could affect growth prospects in Asia in the near future.

The government in China has again pledged to reinforce support for the economy through prudent monetary and active fiscal policies. However, Beijing has made such statements more than once. Perhaps the measures taken by the authorities have already proven their efficiency after all. So, the long-awaited recovery of the Chinese economy is already gaining momentum.

Reports released today showed acceleration in new orders and a strong rise in business sentiment in the world's second-largest economy. The composite business activity index was 52.8 in April. It was an uptick higher than 52.7 in the previous month, but still marked the highest growth in private sector activity since May 2023.

Japan’s monetary authorities also were not procrastinating while the Japanese yen sank to yet another low. Last week, the authorities carried out two currency interventions for which they could have spent up to $59 billion in cash. However, the broader macroeconomic environment remains very negative for the yen.

At least there was no mass closing of short positions by hedge funds. Open short positions in the yen confirm that most traders are still betting on its further weakening against the dollar. Today, the dollar/yen pair is trading in the range of 152.7 to 154.0, following the upward move.

At the same time, experts note that Japan’s central bank clearly has the leeway to carry out more interventions. Perhaps Japan will eventually be able to stabilize its currency until the economic environment becomes more favorable for it. Rising expectations that the Federal Reserve will cut interest rates twice this year could provide some relief to the fragile yen.

Moreover, the US dollar has been losing ground across the board. The greenback took a hit from comments from the Federal Reserve Chairman. Jerome Powell has closed the door to further rate hikes.

Besides, the greenback was bruised by unexpectedly very poor data on the US labor market. The April nonfarm payrolls showed that employment is no longer as robust as a year or two ago. This has fueled optimism that the US central bank can provide a soft landing for the country's economy.

The US dollar has appreciated against its six major peers by almost 4% this year. However, under the pressure of Friday's weak NFPs, the greenback tumbled by about 1% at the end of the week. However, today its index is struggling to find demand and stabilize above the critical line of 105 points. This is quite a challenge after testing the 3-week low at 104.52 on Friday.

At the same time, US stock futures are trading higher today. The S&P 500 stormed to a new high at about ​​5,155 points in the early New York session and tried to consolidate there, sticking to the upper border in the intraday corridor between 5,142 and 5,158.

A rally is unfolding on Wall Street amid a blank economic calendar in the US. But in the euro area, several reports were published at once. Among them, the index of business activity in the service sector and the producer price index deserve special attention. As data showed, the services sector in the EU perked up and rose to 53.3 in April.