T3 Monthly Insights - May 2024

In May, the Dollar Index retreated to April's low, reversing all its gains from the previous month to close at 104.671 (-1.46% m/m). As anticipated, the Federal Reserve left its benchmark overnight interest rate unchanged. U.S. non-farm payroll growth slowed significantly in April, with 175K jobs added compared to the 238K consensus, while the unemployment rate rose to 3.9%, contrary to expectations of it holding steady at 3.8%. The consumer price index increased by 0.3% in April from March, slightly below the forecasted 0.4%. Additionally, retail sales were unexpectedly flat, bolstering market expectations for a September interest rate cut.

Both the Euro and Pound advanced against the weaker dollar, closing at 1.0848 (+1.71% m/m) and 1.2742 (+2.00% m/m), respectively. In its June meeting, the European Central Bank reduced interest rates by 25bps to 3.75%, a move largely anticipated following communications from policymakers in May, supported by weakened price pressures and an improved inflation outlook. This is the first reduction in five years, with rates having been on hold since October last year. In the UK, GDP grew by the most in nearly three years in Q1 2024, expanding by 0.6% versus the forecast of 0.4%. The UK's inflation fell sharply to its lowest level of 2.3% in nearly three years in April, down from 3.2% in March, slightly missing expectations. This was followed by a surprise announcement from Prime Minister Rishi Sunak, electing to hold an early general election in July, rather than in the autumn as expected.

Central banks in Australia and New Zealand held interest rates steady at their May meetings, with no rate cuts expected soon. The Aussie gained in May to 0.6653 (+2.78% m/m) while the Kiwi advanced to 0.6143 (+4.33% m/m). The Australian unemployment rate unexpectedly rose to 4.1%, higher than economists' estimate of 3.9%. Meanwhile, consumer price inflation picked up to a five-month high in April, rising at an annual pace of 3.6%, exceeding expectations of 3.4%.

Gold reached a new all-time high in May, nearing $2,450, driven by weaker-than-expected economic data from the US, before trimming gains to close the month at $2,327.33 (+1.80% m/m). The SEC's approval of Ethereum spot ETFs in May boosted sentiment in the cryptocurrency market, with Bitcoin surging past $70,000, approaching its March high.