Weekly Market Outlook: March 11th-March 17th
Forex
USD
Powell stated that policymakers are not far from acquiring confidence that US inflation will continue to drop sustainably.
The dollar last week, with the dollar index dropping below the 102.7 level. US treasury yields also declined, with the US 10-year bond yielding approximately 4.08% at the end of the week.?
The US Federal Reserve kept interest rates unchanged at its meeting in January, within a target range of 5.25% to 5.50%. The Fed has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy. Fed Chair Jerome Powell, however, has discounted the possibility of a rate cut in March.?
Fed Chair Jerome Powell delivered his Semi-annual Monetary Policy Report to the US Congress and the House Financial Services Committee on Wednesday. Powell’s address to the Senate was on the hawkish side, reiterating that the central bank is not ready to start reducing interest rates. Powell’s testimony, however, did not hold any surprises and rate-cut expectations have already been dialed back considerably.
Powell continued his testimony on Thursday, in a question-and-answer session before the US Senate Banking Committee. Powell’s speech on Thursday was more dovish, putting pressure on the dollar. Powell stated that policymakers are not far from acquiring confidence that inflation will continue to drop sustainably, which is required to start reducing interest rates. Powell also stated categorically that rate cuts will begin this year, removing doubts that the recent uptick in inflation will cause interest rates to remain at high levels throughout the year. Powell’s speech drove the dollar to its lowest level since the start of the year and put pressure on US treasury yields.
Fed officials wish to see more evidence of disinflation before moving ahead with cutting interest rates. Rate cut expectations have been fluctuating strongly in the past couple of weeks. Odds of a rate cut in March are practically nil. Rate cut odds in May are also down to 20% from over 80% a few weeks ago. In addition, only 25 basis points of rate cuts are priced in by May, against 25-50 bp before. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.?
US labor data released last week were overall disappointing, failing to provide support for the dollar. Non-farm employment (NFP) data on Friday beat market expectations. The US economy added 275K new jobs in February, compared to market forecasts of 200K. The January figure, however, was revised lower, down to 229K from 353K. The unemployment rate in February rose to 3.9% from 3.7% in January, against expectations of 3.7%. Average hourly earnings rose by just 0.1% in February compared to 0.3% market estimates and 0.5% growth in January.
Revised Nonfarm Productivity for the final quarter of 2023 was the same as the preliminary reading, indicating a modest growth of 3.2%. Revised Unit Labor Costs missed expectations, however, rising by only 0.4% in Q4 of 2023. Preliminary data showed an increase of 0.5%, while expectations for the revised reading indicated a much higher growth of 0.7%.
ADP Non-Farm Employment data released on Wednesday showed that the number of employed people rose by 140K in February, up from 110K in January, but missing expectations of 149K. JOLTS Job Openings data showed that the US economy added 8.86M new jobs in January, which was in line with expectations.
US ISM Services PMI data released on Tuesday dropped to 52.6 in February from 53.4 in January against expectations of a 53.0 print. The US Services sector continues to expand, as indicated by a print above 50, however, the rate of expansion was reduced in February. US Factory orders also fell below expectations. Factory orders declined by 3.6% in January from a 0.3% drop in December, against expectations of a 3.1% contraction.?
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.4% in January compared to December’s 0.2% growth.? On an annual basis, Core PCE was at 2.8% in January, down from 2.9% in December. Core PCE Price Index data showed that US disinflation is progressing, albeit slowly.?
Preliminary US GDP data showed that the US economy remains robust and expanded by 3.2% in the final quarter of 2023, missing, however, market forecasts of 3.3%. The US economy is expanding at a slower pace, as final GDP data have shown expansion by 4.9% in the third quarter of 2023, but economic growth in Q4 of 2023 exceeded expectations.?
US Headline inflation rose by 3.1% year-on-year in January from a 3.4% print in December against expectations of a much lower reading of 2.9%. Monthly CPI rose by 0.3% in January, exceeding expectations of a 0.2% print. Core CPI, which excludes food and energy, rose by 0.4%, its higher monthly growth since June, against expectations of a 0.3% raise.?
Markets were anticipating a sharp drop in inflation in January, which was not realized, dashing expectations of early Fed rate cuts, and boosting the dollar. The progress of disinflation in the US is not steady, limiting the odds of a Fed rate cut before June.
This week, markets will likely focus on the US inflation report on the 12th. February’s inflation report may show another monthly increase, potentially setting back the Fed’s plans to reduce interest rates. February’s CPI is forecast to rise by 0.4% monthly, which will keep annual inflation steady at 3.1%. A lower-than-expected inflation print may raise rate cut expectations, boosting the dollar.
EUR
Lagarde stated that ECB policymakers expect to have sufficient data in three months, pointing to a rate cut in June.
The Euro surged after the ECB policy meeting on Thursday and EUR/USD touched the 1.097 level at the end of the week. If the EUR/USD pair declines, it may find support at 1.079, while resistance may be encountered near 1.093.
The ECB kept interest rates unchanged at 4.50% at its monetary policy meeting on Thursday, which was in line with expectations. The EU central bank has revised its inflation projections down to an average of 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026. In addition, the ECB has revised down its growth projection for 2024 to 0.6%. Expectations of cooling inflationary pressures coupled with increased economic fragility, may induce the central bank to start cutting interest rates sooner than anticipated.
ECB President Christine Lagarde, in her Press Conference after the policy meeting, stated that the ECB wants to see more evidence of inflation dropping to the central bank’s 2% target. Lagarde said that policymakers expect to have sufficient data in three months, pointing to a rate cut in June, while most market analysts forecast around 90 basis points of cuts this year.?
On the data front, Eurozone Services PMI data on Tuesday showed that the EU Services sector is starting to recover. Final Services PMI rose to 50.2 in February from 50.0 in January, against expectations of a steady print of 50. The Services sector is growing, with a print above 50 that denotes sector expansion. Services PMI data for the Eurozone’s leading economies also exceeded expectations, boosting the Euro ahead of Thursday’s monetary policy decision.
Headline inflation in the EU dropped to 2.6% year-on-year in February from 2.8% in January. Euro area inflation, however, missed expectations of a greater drop to 2.5% in February. Core inflation, which excludes food and energy, has dropped to its lowest level in two years. Core inflation cooled to 3.1% in February from 3.3% in January, but also disappointed expectations of a drop to 2.9%.
Flash GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero, as anticipated. The Eurozone economy does not show sufficient signs of recovery and is on the brink of recession. EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.?
GBP
British Finance Minister Jeremy Hunt announced on Wednesday that he will cut the rate of social security contributions by 2%.
GBP/USD gained strength last week, touching 1.285 at the end of the week. If the GBP/USD rate goes up, it may encounter resistance near 1.316, while support may be found near 1.259.?
Britain's Spring budget was announced on Wednesday boosting the Sterling. British Finance Minister Jeremy Hunt is tasked with striking a balance between boosting economic growth and managing high inflation. Hunt announced on Wednesday that he will cut the rate of social security contributions by 2%. Hunt was hoping to announce tax cuts to the British public to boost the appeal of the Torry party ahead of the General Elections at the beginning of next year. Budget constraints, however, have left the British Finance Minister little room to maneuver with.
UK Services PMI data released on Tuesday missed expectations, putting pressure on the Sterling. British Services PMI dropped to 53.8 in February from 54.3 in January against expectations of a steady print of 54.3. The Services sector in the UK continues to expand as evidenced by a print above the threshold of 50. The rate of expansion, however, is slowing down.?
The BOE maintained its official rate at 5.25% at its latest meeting, as expected. In addition, the BOE updated its inflation outlook, predicting that inflation will drop to the BOE’s 2% target in the second quarter of the year. This reinforced the notion that the central bank is preparing to cut interest rates. BOE Governor Andrew Bailey has stressed that inflationary pressures are cooling and that further rate hikes are not required.?
Market expectations of BOE rate cuts are putting pressure on Sterling. Markets had been pricing in aggressive rate cuts of over 100 basis points this year. In the past couple of weeks, however, rate cut expectations have become more moderate, dropping to 70bp.?
The British economy remains fragile and may force the BOE to pivot to a more dovish policy. Recent GDP data showed that the country has slipped into recession. Monthly GDP contracted by 0.1% in December, from a 0.2% growth in November. Preliminary quarterly GDP data revealed that the British economy contracted by 0.3% in the final quarter of 2023, against expectations of 0.1% contraction and 0.1% contraction in the third quarter of 2023. The British economy expanded by 0.3% in the first quarter of the year and 0.2% in the second quarter.?
British headline inflation remained steady at 4.0% year-on-year in January, against expectations of a 4.1% print. Annual Core CPI, which excludes food and energy, grew at the same pace of 5.1% as December and November, against the 5.1% forecast. British inflation is expected to fall towards the BOE’s 2% goal in the coming months, relieving some of the pressure on the central bank to keep high-interest rates.?
JPY
Reports that BOJ members would speak in favor of a rate hike at the next policy meeting in March have raised rate hike expectations, boosting the Yen.
USD/JPY retreated last week, dropping to the 147 level on Friday. If the USD/JPY pair declines, it may find support near 146.2. If the pair climbs, it may find resistance near 150.8.
The BOJ kept all policy levers unchanged at its January meeting, maintaining its ultra-easy monetary policy. The BOJ has been keeping interest rates at a negative level, putting pressure on the Yen. The BOJ has so far maintained its dovish bias as other major central banks, and especially the Fed, have raised interest rates to high levels. BOJ Governor Kazuo Ueda has hinted at a policy shift down the road but has remained non-committal as to the timeline of a potential rate hike.
An immediate policy shift is not expected yet, but markets are pricing in the first BOJ rate hike in June with a lower probability of a rate hike in April. Only a small rate hike of 10bps is considered likely, which would bring the BOJ’s interest level from negative to zero.?
Last week, however, reports that BOJ members would speak in favor of a rate hike at the next policy meeting in March, raised rate hike expectations, boosting the Yen. BOJ’s Junko Nakagawa stated on Thursday that Japan’s economy was moving toward sustainably achieving a 2% inflation target, indicating that at least some policymakers are considering a pivot to a more hawkish policy. Japan’s Deputy Chief Cabinet Secretary Hideki Murai also stated on Tuesday that inflation in Japan is gradually rising, boosting expectations of a rate hike later in the year.
Inflation in Japan remains low but is slowly rising. Tokyo Core CPI rose by 2.5% year-on-year in February from 1.6% in January, according to data released on Tuesday. BOJ Core CPI remained at 2.6% year-on-year in January against expectations of 2.3% print. In addition, headline inflation rose by just 2.0% year-on-year in January from 2.3% in December.?
Ueda warned last week that the goal of achieving the bank's 2% inflation target sustainably is not yet in sight. Ueda’s dovish remarks reinforced the notion that the BOJ is not yet ready to raise interest rates, putting pressure on the Yen.
领英推荐
The Yen has retreated to its lowest level in three months, causing alarm among Japanese government officials. The BOJ has intervened at least twice in 2022 to support the Yen by selling dollars and buying Yen to support the country’s currency. Japanese officials have been issuing warnings against opportunistic short sellers of the Yen, hinting at another intervention to support the currency.?
Preliminary GDP data for the final quarter of the year showed that Japan's economy contracted by 0.1% against expectations of expansion by 0.2% and 0.7% contraction in the third quarter. The Japanese economy expanded by 1.2% in the second quarter of 2023, showing that the country’s economy is shrinking. Recession concerns and cooling inflation shrink the odds of a BOJ hawkish pivot in the coming months.
Gold
Gold prices have experienced a meteoric rise since last week and are trading in overbought territory.
Gold prices broke through the 2,150 per ounce resistance level on Thursday, going above 2,180 per ounce on Friday for the first time. If gold prices increase, further resistance may be encountered at the psychological level of $2,200 per ounce, while if gold prices decline, support may be encountered near $2,025 per ounce.?
Gold prices have experienced a meteoric rise since last week and are trading in overbought territory. The dollar’s decline, combined with the rise in demand for safe-haven assets due to the war in Gaza, has propelled gold prices upward.?
Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. The war between Israel and Hamas is threatening to spill over the Middle East as tensions rise in the Red Sea area.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar last week, with the dollar index dropping below the 102.7 level. US treasury yields also declined, with the US 10-year bond yielding approximately 4.08% at the end of the week.?????
Gold prices have also been influenced by US fundamentals. Last week’s data revealed that the US economy is not as robust as previously anticipated. Rising concerns about the health of the US economy weighed down the dollar and propelled the safe-haven gold upwards.?
The Fed kept interest rates unchanged at its latest monetary policy meeting within a target range of 5.25% to 5.50%. The Fed, however, has removed the tightening bias from its policy statement, indicating that the central bank is preparing to pivot to a less restrictive monetary policy, boosting gold prices.
Fed Chair Jerome Powell delivered his Semi-annual Monetary Policy Report to the US Congress and the House Financial Services Committee on Wednesday. Powell’s address to the Senate was on the hawkish side, reiterating that the central bank is not ready to start reducing interest rates. Powell’s testimony, however, did not hold any surprises, and rate cut expectations have already been dialed back considerably and the dollar dipped further after Powell’s speech.
Powell continued his testimony on Thursday, in a question-and-answer session before the US Senate Banking Committee. Powell's speech on Thursday was more dovish, putting pressure on the dollar. Powell stated that the US central bank is not far from acquiring confidence that inflation will continue to drop sustainably, which is required to start reducing interest rates. Powell also stated categorically that rate cuts will begin this year, removing doubts that the recent uptick in inflation will cause interest rates to remain at high levels throughout the year. Powell’s speech drove the dollar to its lowest level since the start of the year and put pressure on US treasury yields.
Rate cut expectations have been fluctuating strongly, affecting gold prices. Odds of a rate cut in March are practically nil. Rate cut odds in May are also down to 20% and only 25 basis points of rate cuts are priced in by May, against 25-50 bp before. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.
Oil
China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks.
Oil prices edged lower last week, with WTI price dropping to the $77.8 per barrel level on Friday. If WTI price declines, it may encounter support near $76.0 per barrel, while resistance may be found near $80.9 per barrel.
China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. Government plans for China’s economic growth, which were announced on Tuesday, disappointed market expectations, putting pressure on oil prices. The Beijing government announced a modest economic growth target of 5% for 2024, which will do little to boost the oil demand outlook.?
Optimistic Chinese trade data on Thursday, however, provided support for oil prices. China's import and export growth exceeded expectations, and China’s crude oil imports grew in the first months of 2024.?
US crude oil inventories released on Wednesday showed that US crude stockpiles fell short of expectations. The US Energy Information Administration reported a weekly crude stockpile build of 1.4M barrels for the week to March 1st, against expectations of a 2.4M barrel raise and following a build of 4.2M barrels the week before.
Oil prices were propelled upwards last week by reports that OPEC+ is considering extending its voluntary output cuts throughout the year. The organization is enforcing substantial production cuts to keep oil prices high. OPEC+ announced on Monday its decision to keep its oil output policy unchanged, maintaining the voluntary production cuts that have already been in place through the second quarter of 2024. Russia announced additional cuts of 471K barrels per day as a result of lower refinery runs due to Ukrainian drone strikes.?
Even though OPEC’s output cuts will limit oil supply, the organization’s decision did not come as a surprise and had already been priced in by markets. Some investors were anticipating even higher production cuts, which were not realized, driving oil prices down after the organization’s announcement on Monday.?
Raging tensions in the Middle East boost oil prices. Supply concerns provide support for oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Tensions around the Red Sea area have been rising, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants are attacking commercial vessels in the Red Sea, raising concerns about oil supply.?
Oil prices are also kept in check by a strong US dollar and high-interest rates. The Fed kept interest rates unchanged at its latest policy meeting in January, within a target range of 5.25% to 5.50.?
Cryptocurrencies
Bitcoin price surpassed its all-time high of $69,120 last week and almost touched the key $70,000 level over the weekend.
Most major cryptocurrencies have been on a bullish trend for the past few weeks. Bitcoin has crossed major resistance levels, reaching its highest level since November 2021. Bitcoin’s bullish run has renewed interest in crypto markets, boosting other cryptocurrencies as well.
Bitcoin price touched its all-time high of $69,120 on Tuesday but dropped sharply immediately after. Bitcoin rallied again on Wednesday and almost touched the $70,000 key level over the weekend. If BTC price declines, support can be found at $59,300, while resistance may be encountered near $70,000.?
Ethereum price surged last week, climbing to the $3,900 level at the end of the week. If Ethereum's price declines, it may encounter support near $3,200, while if it increases, resistance may be encountered near $4,000.
Bitcoin is gaining strength as the Bitcoin halving event is approaching. Every halving event cuts the rate at which new bitcoins are released into circulation in half, increasing the scarcity value of Bitcoin. The halving is scheduled approximately every four years, and the next Bitcoin halving event is expected on April 17th raising the value of the cryptocurrency.
The approval of Bitcoin spot exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) has caused cryptocurrency prices to surge over the past few months. The SEC has approved 11 applications boosting Bitcoin price. Spot Bitcoin ETF demand has been on the rise this week, boosting the cryptocurrency as well.
Cryptocurrency prices are affected by central banks’ interest rates. High-interest rates are putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The Fed kept interest rates unchanged at its latest meeting, within a target range of 5.25% to 5.50%. The Fed, however, has indicated that it is preparing to pivot to a less restrictive monetary policy, providing support for crypto markets.?
Markets are under pressure by increased risk-aversion sentiment caused by rising geopolitical tensions. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries drive risk sentiment down putting pressure on risk assets.?
Read the full article for more information and to check this week's important Forex calendar events.
The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.