Forex Today: The BOE opened Pandora’s box

What you need to take care of on Friday, May 6:

The American dollar recovered all the ground shed post-Fed and even reached fresh weekly highs against some of its major rivals as financial markets entered panic mode.

The catalyst came from the Bank of England monetary policy meeting. The central bank raised interest rates by 25 bps to 1.0%,  agreed by all voting members. However, the central bank downwardly revised its growth estimates for this year and the next one, warning the UK will fall into recession before the year-end, adding that inflation will likely have two digits by the same time. As a result, the GBP/USD pair fell to 1.2324, its lowest since June 2020.

Stagflation-related fears hit US trading desks, with Wall Street collapsing and government bond yields soaring to their highest in four years. The yield on the 10-year Treasury note hit an intraday high of 3.10%, stabilizing in the American afternoon just below such a high.  

Ahead of the close, the Dow Jones Industrial Average is down over 1,300 points, the Nasdaq Composite sheds roughly 6%, while the S&P 500 is down 4.20%.

The EUR/USD pair returned to the 1.0500 area after touching a weekly high of 1.0641. The shared currency is among the weakest USD rivals, as the Union is struggling to replace Russian energy while the ECB stands well beyond the curve, likely to discuss a rate hike not early than July.

Meanwhile, the OPEC+ agreed to increase oil supply by 432K bpd in June to cool down overheating prices. The barrel of WTI is currently trading at $108.30 a barrel, up for the day.

On the other hand, Gold Price collapsed. The bright metal surged beyond the $1,900 threshold at the beginning of the day but ended it at around $1,870, unable to resist the greenback’s strength.

Commodity-linked currencies were sharply down, with AUD/USD now trading below 0.7100 and the USD/CAD at around 1.2850.

The greenback advanced against safe-haven currencies, with USD/CHF reaching 0.9889, its highest since March 2020. USD/JPY trades a handful of pips above 130.00.

The focus now shifts to US employment figures, as the country will publish on Friday the April Nonfarm Payrolls report.