Russia's Novak: Oil market is balanced but there are lots of uncertainties

Following his meeting with Saudi Arabia's energy minister, Russian Deputy Prime Minister Alexander Novak said on Thursday that they have discussed forecasts on oil prices.

"It is important to continue joint work at OPEC+ to avoid collapse on the oil market," Novak added and noted that the oil market is currently balanced while acknowledging that there were lots of uncertainties.

Market reaction

Crude oil prices showed no immediate reaction to these comments and the barrel of West Texas Intermediate (WTI) was last seen trading at $113.50, where it was down 2% on a daily basis.

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GBP/USD: Rebound remains capped below 1.2100 ahead of the Fed

GBP/USD extends the bounce ahead of the critical Fed outcome.

US dollar retreats alongside yields and amid a rally in EUR/USD.

BOE is set to hike rates by 25 bps while the Fed could go for a 75 bps hike.

GBP/USD is consolidating the steep upsurge below 1.2100, as bulls take a breather after extending the recovery by over 150 pips.

The main catalyst behind cable’s impressive rebound could be linked to the broad-based US dollar correction, as investors take profits off the table on their USD longs ahead of the all-important Fed interest rate decision. The Fed pre-committed to a 50 bps rate hike in June and July, although markets have baked in a 75 bps lift-off after Friday’s hot US inflation.

Meanwhile, the pick up in the EUR/USD recovery following news that the ECB has called on an emergency meeting to discuss the recent sell-off in the bond market. The euro capitalized on the ECB news, as it fuelled hopes that the central bank was ready to act on the market turmoil. The renewed uptick in the main currency pair triggered a fresh downswing in the dollar across its main peers, boding well for the beleaguered pound.

On Thursday, the Bank of England (BOE) monetary policy decision will take the center stage after Wednesday’s Fed outcome is out of the way. The BOE Is widely expected to hike the key rates by 0.25 bps to 1.25% this month.

Although a surprise 50 bps rate hike remains on the table amid higher inflation expectations and hopes that the BOE could take a strong action to control inflation.

Ahead of these central bank policy outcomes, the US Retail Sales data will be eyed for near-term trading impetus. The data, however, is unlikely to drive markets.

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Gold Price Forecast: XAUUSD struggles amid rapid rises in bond yields – Commerzbank

Gold came under considerable pressure on Monday and fell by almost 3% to around $1,820. As strategists at Commerzbank note, gold is facing headwind from the persistently firm US dollar and, above all, from the further rapid rises in bond yields. 

Fed could hike interest rates by 75 bps at its June meeting

“Yields on two-year US Treasuries have surged by around 30 basis points. Yields on ten-year US Treasuries climbed for a time above 3.4%, their highest level in more than eleven years. As a result, real interest rates have also picked up significantly and at 0.68% now find themselves at their highest level in over three years. This makes gold less attractive as a non-interest-bearing alternative investment.” 

“According to the Wall Street Journal, the US Federal Reserve will be raising interest rates by 75 basis points tomorrow, which the market immediately priced in. The market now anticipates rate hikes totalling 200 basis points by September.”

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US dollar to weaken over short-term on a 50 bps hike from the Fed – Nordea

Economists at Nordea believe the Federal Reserve will hike by 50 bps, but uncertainty is very high. If they are right, the USD could weaken in favour of other G10 currencies.

USD could strengthen on a 75 bps hike from the Fed 

“We believe the Fed will hike by 50 bps this week but we admit that the uncertainty is very high. If we are right, we will likely see the USD weaken again in favour of other G10 currencies such as EUR, NOK, SEK, DKK, etc over the short-term. 

“If we are wrong, the USD could strengthen somewhat more against the rest of G10 currencies.”

“From a technical standpoint, the USD is close to being overbought against most G10 currencies currently.”

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GBP/USD hits multi-week lows near 1.2420 pre-US CPI as UK growth fears linger

GBP/USD hit multi-week lows on Friday in the low 1.2400s, with bears eyeing a push lower into the 1.2300s.

Near-term focus is on the upcoming US CPI release and whether it will impact Fed tightening expectations.

GBP/USD broke out to fresh multi-week lows in the 1.2420 area on Friday amid mixed FX market conditions and somewhat risk-averse pre-US inflation data trading conditions. The pair was last trading with losses of roughly 0.5% on the day, with bears eyeing a push lower into the 1.2300s in the week ahead should fears about the weakening UK economy linger.

According to a REC survey cited by Reuters on Friday, UK employers hired staff at the slowest pace since early 2021 in May, with the hiring pace having now declined for a sixth successive month. Sterling also has domestic politics to worry about, with the UK government reiterating its intention to pass legislation that would unilaterally amend the Northern Ireland Protocol (putting the UK’s free trade deal with the EU at risk) and with UK PM Boris Johnson’s authority having been weakened after a no-confidence vote on Monday that saw a larger than expected rebellion from his own MPs.

In the near-term, focus will be on US Consumer Price Inflation data scheduled for 1230GMT and analysts think that the data might ease inflation worries, which could (at the margin) relieve some pressure being felt by the Fed to tighten monetary policy so quickly in the quarters ahead. This could provide GBP/USD with some short-term support. But given Fed/BoE policy divergence and a comparatively weak UK growth story, traders may be inclined to sell any sterling rallies.

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Gold Price Forecast: XAUUSD to shrug off ECB meeting 

Gold is on standby ahead of European Central Bank (ECB) meeting. Economists at Commerzbank expect the ECB decision to be ignored by the yellow metal.

Gold is popular with central banks as a safe haven and store of value

“We believe that the ECB will decide today to bring its bond purchases to an end at the start of the third quarter. In addition, it is likely to signal fairly clearly that interest rates will be raised at its next meeting in July and that the deposit rate will no longer be negative by the end of September. This would imply that the next rate hike will come in September.”

“We believe it is questionable whether any statement will be made about the longer-term interest rate outlook, as there is still a lack of consensus on this issue within the ECB Governing Council. The hawkish remarks expected from Lagarde are probably already priced in, for the most part, so under normal circumstances, we would not expect any major reaction from the gold price this afternoon.” 

“According to a survey of nearly 60 central banks conducted by the World Gold Council (WGC), about a quarter of central banks are planning to top up their gold reserves in the next twelve months. What is more, the majority of survey respondents expect the proportion of gold in the currency reserves to increase in the next few years.” 

“The WGC says that gold is popular with central banks as a safe haven and store of value. Furthermore, gold is expected to perform better in times of crisis. That said, central banks have been buying considerably less gold of late.”

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 AUD/USD remains on the defensive near 0.7200 mark, downside seems cushioned

AUD/USD came under some renewed selling pressure on Wednesday amid modest USD strength.

A goodish pickup in the US bond yields and a softer risk tone benefitted the safe-haven greenback.

A break below the 0.7150 area is needed to confirm a bearish outlook ahead of the US CPI on Friday.

The AUD/USD pair met with a fresh supply on Wednesday and erased the previous day's modest gains back closer to the 100-day SMA resistance. The pair remained on the defensive heading into the North American session and was last seen trading around the 0.7200 mark, down nearly 0.35% for the day.

A combination of factors provided a modest intraday lift to the US dollar, which, in turn, exerted some downward pressure on the AUD/USD pair. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war could push consumer prices even higher and force the Fed to tighten its monetary policy at a faster pace. This, in turn, triggered a fresh leg up in the US Treasury bond yields, which, along with a softer risk tone, offered some support to the safe-haven greenback.

The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. This, to a larger extent, overshadowed a more hawkish Reserve Bank of Australia (RBA) decision on Tuesday. It is worth recalling that the RBA raised interest rates by the most in 22 years and indicated that further tightening is in the pipeline as it battles to restrain surging inflation. The markets were quick to price in the real risk of another 50 bps rise in July.

That said, the AUD/USD pair's inability to gain any meaningful traction and repeated failures near the 100/200-day SMA confluence suggests that the recent bounce from the YTD low has run out of steam. Traders, however, seemed reluctant to place aggressive bearish bets and preferred to wait for the US consumer inflation figures, scheduled for release on Friday. Hence, it will be prudent to wait for sustained weakness below the 0.7150 horizontal support before positioning for any further depreciating move.

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