EUR/USD declines by five hundredths of a percent into the mid 1.0800s on Tuesday, before the big event of the week in Forex, the Federal Reserve’s (Fed) March meeting policy announcement.
Although the Fed is not expected to change its interest rates at the meeting, there is a chance it could change its accompanying statement and forecasts. This could alter the outlook for interest rates and therefore the US Dollar (USD) valuation.
Interest rates, set by central banks, are a key driver for foreign exchange markets. Higher interest rates tend to support a currency by attracting greater inflows of foreign capital with the opposite being the tendency for lower rates.
EUR/USD downside over recent days has mainly been driven by renewed US Dollar strength, on the back of a combination of rising expectations there will be a delay in the Fed cutting interest rates and that there may be fewer cuts overall in 2024.
Speculation is mounting that the Federal Reserve will revise the forecasts in its accompanying notes to the meeting, the Summary of Economic Projections (SEP). In the previous SEP, Fed officials forecast three 25 basis points (0.25%) rate cuts in 2024 but some analysts now think there is a material risk that this could be revised down to two 25 bps cuts to reflect inflationary pressures remaining elevated. A revision down to two cuts could pressure EUR/USD lower.
“The summary of economic projections will be updated and contains hawkish risks in our assessment with the committee potentially projecting fewer cuts in 2024,” says David Doyle, head of economics at Macquarie, in a note about the Fed meeting.
The market continues to see June as the first month when the Fed is more likely than not to make its first interest rate cut, but over the last few days July has gained in popularity. Current market-based probabilities, based on the CME FedWatch Tool, favor one or more cuts by June with a 55.1% chance, and by July with a 73.7% probability. The June figure has been trending down.
“Our view on FOMC policy remains that the first 25 bps cut will occur in July,” says Macquarie’s Doyle. “ In 2024 we anticipate 50 bps of cuts and a further 50 bps in 2025,” he adds.
In Europe, a similar debate is going on about when to begin cutting interest rates. On Tuesday, Vice-President of the European Central Bank (ECB), Luis de Guindos, said “we have to wait,” because “services inflation” remains too high.
De Guindos said he thought June was the right time to review cutting interest rates. His views fall in line with that of the ECB President Christine Lagarde and several other officials.
Although a faction within the ECB led by Francois Villeroy de Galhau appeared to be pushing for a spring rate cut earlier in the month, they appear to be outnumbered by officials favoring June.
The EUR/USD seemed to find some support on Monday after the Eurozone Trade Balance data showed a healthy surplus for the region, and final revisions for inflation data for February came out in line with flash estimates.
Data out on Tuesday is unlikely to move the dial much. In Europe, German and Eurozone ZEW Survey results are scheduled for publication. In the US, Building Permits (a leading indicator) and Housing Starts will be released later in the day.
EUR/USD penetrates below the level of the 1.0867 swing lows on Tuesday, and by doing so probably reverses the direction of the short-term uptrend. Now the odds favor more losses.
Euro versus US Dollar: 4-hour chart
A new series of declining peaks and troughs has begun since the March 8 highs. Subject to fundamentals, the price will probably continue to fall to the next key support level at roughly 1.0800 – the lows of wave B of the Measured Move that unfolded in February and early March.
The daily chart below is showing the Moving Average Convergence/ Divergence (MACD) momentum indicator crossing over the signal line, giving a bearish sell signal, and adding further evidence to a change of trend.
However, it is also flagging up a few key barriers to progress lower in the form of dynamic support from the red 50-day and then the green 200-day Simple Moving Averages (SMA).
Euro versus US Dollar: Daily chart
The 50-day SMA is situated at 1.0848 and the 200-day SMA at 1.0839 and both are likely to be tough support levels to crack. Whether bears can push through, may well depend on the outcome of the up-and-coming Fed meeting.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
EUR/CHF is flying high at 0.9660. Economists at ING analyze the Swiss Franc (CHF) outlook ahead of the SNB meeting on Thursday.
Data released today showed that the Swiss National Bank was still selling FX in the fourth quarter of last year. It might have flipped to FX buying this quarter, but confirmation of that will not emerge until late June.
In focus, however, is Thursday's Swiss National Bank rate meeting, where some are looking for the first rate cut. That is not our house view, but we do not rule it out given that the SNB only meets four times per year compared to eight times for the ECB.
A surprise SNB cut would likely carry EUR/CHF over 0.9700 and potentially USD/CHF sharply higher since EUR/USD could come lower on a major European central bank cutting rates.
West Texas Intermediate (WTI) oil price slightly retreats to near $81.80 per barrel during European trading hours on Tuesday. This decline is attributed to increasing supply from Russia, coupled with moderating demand for jet fuel and cautious trading ahead of the Federal Reserve's (Fed) decision on interest rates. Russia has escalated its exports in response to Ukrainian attacks on the country's oil infrastructure, contributing to continued downward pressure on oil prices.
However, analysts highlighted Ukraine's drone strikes on three Russian oil refineries over the weekend, which account for at least 10% of Russia’s total oil processing capacity. Additionally, Ukraine announced on Sunday its intention not to extend a five-year agreement with Russia's Gazprom regarding the transit of Russian gas to Europe.
Iraq has announced plans to reduce its Crude exports to 3.3 million barrels per day (bpd) in the coming months to offset exceeding its OPEC+ quota since January. Additionally, Saudi Arabia's Crude exports have decreased for the second consecutive month, dropping to 6.297 million bpd in January compared to 6.308 million bpd in December.
Saudi Aramco CEO Amin Nasser stated on Monday that global oil demand is not expected to peak for some time. He emphasized the need for policymakers to ensure sufficient investment in oil and gas to meet consumption, dismissing the notion of phasing out fossil fuels as a fantasy.
Nasser projected that oil demand will reach a new record of 104 million bpd in 2024. Despite increasing investments, alternative energy sources have yet to significantly displace hydrocarbons on a large scale.
AUD/USD dropped after the Reserve Bank of Australia (RBA) removed its tightening bias. Economists at Commerzbank analyze Aussie’s outlook.
Interest rates were left unchanged at 4.35%. At the same time, RBA removed its hint that further tightening might be appropriate.
The next interest rate move is likely to be a rate cut. However, this does not mean that such a cut will take place in the near future. The RBA also pointed out that inflation in services is much more persistent. And high wage growth is only consistent with the inflation target if productivity growth picks up. In our view, the RBA is therefore maintaining its cautious approach.
It is likely to be several months before the first rate cut is announced. The RBA is unlikely to cut rates until inflation falls more significantly. This is unlikely to happen until after the Fed, so the Aussie should be able to make gains again in the coming weeks.
European Central Bank (ECB) policymaker Pablo Hernandez de Cos said on Tuesday, "we could start cutting rates in June but it is conditional on the data.”
Risks to inflation outlook are balanced.
But risks to growth projections are clearly to the downside.
EUR/USD is testing lows near 1.0845, down 0.23% on the day, following the above comments.
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Silver (XAG/USD) remains under some selling pressure for the second successive day on Tuesday and retreats further from the YTD peak, around the $25.45 region touched last week. The white metal continues losing ground through the first half of the European session and drops to a fresh daily low, around the $24.85-$24.80 area in the last hour.
From a technical perspective, the recent breakout through the very important 200-day Simple Moving (SMA) and a subsequent strength beyond the $24.50-$24.60 horizontal barrier favour bullish traders. Moreover, oscillators on the daily chart – though have been retreating from higher levels – are still holding comfortably in the positive territory. This, in turn, supports prospects for the emergence of some dip-buying and warrants some caution before positioning for any further depreciating move.
Meanwhile, the $24.60-$24.50 resistance breakpoint now seems to protect the immediate downside. Any further decline could be seen as a buying opportunity and is more likely to remain limited near the $24.15-$24.10 region. This is followed by the $24.00 round-figure mark, which if broken decisively might shift the bias in favour of bearish traders. The XAG/USD might then accelerate the corrective decline back towards the 200-day SMA support, currently pegged near the $23.35-$23.30 region.
On the flip side, momentum back above the $25.00 psychological mark might confront some resistance near the $25.20 region ahead of the YTD peak, around the $25.45 area. Some follow-through buying will reaffirm the near-term positive outlook and allow the XAG/USD to aim back to challenge the December 2023 swing high – levels just ahead of the $26.00 round figure. The latter should act as a pivotal point, which if cleared will pave the way for an extension of over a two-week-old uptrend.
EUR/USD remains under bearish pressure. Economists at ING analyze the pair’s outlook.
EUR/USD has softened a little, which seems to be more in line with short-term interest rate differentials. At -135 bps, two-year EUR:USD swap rate differentials remain at their widest levels for the year.
We doubt a marginally better German ZEW number today will move the needle much on ECB rate cut expectations or the Euro and it looks like EUR/USD will struggle to get back above 1.0900 short term.
The USD/CAD pair jumps to 1.3550 in Tuesday’s European session after breaking above the two-day consolidation formed in a range of 1.3510-1.3550. The Loonie asset advances as uncertainty ahead of key events has dampened risk appetite of market participants.
S&P500 futures have generated nominal losses in the London session, indicating a risk-aversion mood. The US Dollar Index (DXY) continues its winning spell for the fourth trading session and refreshes its weekly high at 103.87 amid uncertainty ahead of the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.
The CME FedWatch tool shows that the central bank is certain to keep interest rates unchanged in the range of 5.25%-5.50%. Investors will focus on cues about rate cuts by the Fed, which are currently expected in the June policy meeting.
Meanwhile, the next move in the Canadian Dollar will be guided by Canada’s Consumer Price Index (CPI) data for February, which will be published at 12:30 GMT. Annual headline inflation is expected to have grown at a higher pace of 3.1% compared to 2.9% recorded for January.
USD/CAD approaches the horizontal resistance of the Ascending Triangle pattern formed on a daily timeframe, plotted from December 7 high at 1.3620. The upward-sloping border of the aforementioned pattern is placed from December 27 low at 1.3177. The chart pattern exhibits a sharp volatility contraction.
The near-term appeal is bullish, as the 20-day Exponential Moving Average (EMA) near 1.3520 continues to support the US Dollar bulls.
The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating indecisiveness among investors.
The Loonie asset would observe a fresh upside if it breaks above December 7 high at 1.3620. This will drive the asset towards May 26 high at 1.3655, followed by the round-level resistance of 1.3700.
On the flip side, a downside move below February 22 low at 1.3441 would expose the asset to February 9 low at 1.3413. A breakdown below the latter would extend downside towards January 15 low at 1.3382.
USD/MXN continues its upward trend, reaching near 16.90 and marking gains for the fourth consecutive session on Tuesday. Traders are awaiting Private Spending data on Tuesday and Retail Sales figures on Wednesday from Mexico. Furthermore, attention is on the Bank of Mexico's (Banxico) interest rate decision on Friday, with expectations of a 25 basis points reduction.
In Banxico's quarterly report, officials acknowledged progress in inflation control and stressed the importance of avoiding premature interest rate cuts. However, recent speeches and media appearances indicate a division within Banxico's Governing Council. Governor Victoria Rodriguez Ceja, Omar Mejia Castelazo, and Galia Borja Gomez lean dovish, while Jonathan Heath and Irene Espinosa Cantellano take a more hawkish stance.
An economic slowdown in Mexico stands out as the primary event that could prompt Banxico's first rate cut, as the central bank has revised its economic projections downward. Despite Mexico's Industrial Production surging over twelve months, surpassing December's stagnant performance, this could bolster the hawkish stance of Banxico.
Meanwhile, the US Dollar (USD) strengthens to near 103.90, driven by improved US Treasury yields at 4.73% and 4.32% for 2-year and 10-year US bond coupons, respectively. Investors eagerly await the interest rate decision from the US Federal Reserve (Fed), expected to be announced on Wednesday. The Federal Reserve (Fed) is expected to maintain its elevated interest rates in response to recent inflationary pressures.
The Bank of Japan (BoJ) has finally ended its eight-year reign of negative interest rates. USD/JPY surged above 150.00 after the decision. Economists at ING analyze Yen’s outlook.
Gone are the negative interest rates, yield curve control and purchases of ETFs and Real Estate Investment Trusts. Instead, excess reserves at the BoJ will now be remunerated at 0.10% and the BoJ will target the overnight call rate (its main policy rate now) in a range of 0.0%-0.1%.
The Yen sold off on the headlines that the BoJ would keep an accommodative policy for a while, but recent headlines are suggesting that further rate hikes may be forthcoming now that the virtuous link between wages and prices has been confirmed.
The problem for the Yen, however, is that volatility remains exceptionally low and the carry trade exceptionally popular. USD/JPY may well trade in a 150.00-152.00 range for the time being (locals in Tokyo think the BoJ will not intervene to sell USD/JPY until 155.00), and a lower USD/JPY will have to be led from the Dollar side.
The Japanese Yen (JPY) reacted negatively after the Bank of Japan (BoJ) announced an end to its negative rate policy. Economists at Commerzbank analyze Yen’s outlook.
The BoJ actually raised interest rates for the first time since 2007. The short-term policy rate is now set between 0 and 0.1%. At the same time, the target for long-term JGBs (the YCC) was abandoned, although the BoJ still intends to buy a similar number of JGBs per month as before, just without an explicit target. On the other hand, it stops buying ETFs and REITs and purchases of commercial paper and corporate bonds will be gradually reduced and stopped completely in 12 months.
A symbolic exit from the negative interest rate policy is unlikely to give the Yen much of a boost. After all, there have already been a number of exceptions to the negative interest rate policy, and the latest rate hike was only a few basis points. Only if the BoJ hints at further rate hikes, which would indicate a real rate hike cycle, will the Yen benefit more. Anything else has been priced in after the statements of the past few weeks.
While the BoJ did take a first step away from its ultra-expansive monetary policy, it was not a clear hawkish turn, but rather a dovish rate hike. The key now is likely to be inflation. If there are further signs that inflation is persistently stuck at the BoJ's 2% target, further steps to normalize monetary policy could follow.
However, we remain skeptical that inflation will really stay high. After all these years of extremely low inflation, we think it would have been better to wait a bit longer for this wage-price spiral to anchor inflation sustainably at the 2% target. After today's decision, there is still a risk that the BoJ will have to stop normalizing its monetary policy sooner rather than later. This should be kept in mind.
The Pound Sterling (GBP) continues its losing streak for the fourth trading session on Tuesday as investors turn risk-averse in a big central banks’ week. The GBP/USD pair prints a fresh weekly low ahead of the interest rate decisions by the Federal Reserve (Fed) and the Bank of England (BoE). As both central banks are anticipated to maintain the status quo, investors will majorly focus on clues about the interest rate outlook.
In the United Kingdom, investors will scrutinize the BoE’s monetary policy statement to look for any cues about the timing for interest-rate cuts. UK headline inflation has come down significantly from the double-digit figures to 4%, mainly because the BoE has raised and kept interest rates at high levels for more than two years. Maintaining higher interest rates has also led to a sharp decline in economic growth, uplifting expectations for rate cuts in August.
Before the BoE policy decision, market participants will focus on the UK Consumer Price Index (CPI) data for February, which will be published on Wednesday. Expectations for the BoE to lower interest rates sooner could escalate if the inflation data turns out softer than expected. On the contrary, stubborn data will deepen uncertainty over rate cuts. The Pound Sterling tends to strengthen when inflation data comes in higher than expected, suggesting BoE policymakers will maintain a hawkish narrative.
The Pound Sterling falls to the breakout region of the Descending Triangle formed around 1.2700. The near-term demand for the GBP/USD pair has turned uncertain as it has dropped below the 20-day Exponential Moving Average (EMA), which trades around 1.2730.
On the downside, the downward-sloping border of the Descending Triangle chart pattern could support the Pound Sterling. On the upside, a seven-month high at around 1.2900 will be a major barricade.
The 14-period Relative Strength Index (RSI) returns to the 40.00-60.00 range, indicating a sharp volatility contraction.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
USD/CHF climbs towards 0.8890 during the Asian hours on Tuesday, driven by higher US Treasury yields. Market expectations suggest that the Federal Reserve will maintain its monetary policy unchanged during the March meeting scheduled for Wednesday. The Fed is under pressure to prolong its elevated interest rates in response to recent inflationary pressures.
Bond markets are experiencing selling pressure as further signs of resilience in the United States (US) economy emerge, leading traders to adjust their expectations for fewer interest rate cuts this year. The likelihood of rate cuts in June and July has decreased, standing at 55.1% and 73.7%, respectively.
In February, the Swiss Trade Balance revealed a surplus of 3662 million, surpassing expectations of 3500 million but declining from January's 4,701 million. Imports (MoM) increased to 18,812 million from the previous reading of 18,046 million, while monthly exports decreased to 22,474 million from 22,746 million prior.
The Swiss National Bank (SNB) forecasts inflation to average 1.9% in 2024. Presently, the inflation rate is notably below this projection at 1.2%. However, there was a notable increase in the Consumer Price Index (CPI) in February, rising by 0.6% compared to 0.2% previously on a monthly basis.
Market participants are eagerly awaiting the Swiss National Bank (SNB) March policy meeting scheduled for Thursday. According to Reuters, there is a 29% probability of the SNB trimming its 1.75% policy rate at the meeting. A rate cut by the SNB could potentially weaken the Swiss Franc (CHF) as lower interest rates typically attract fewer foreign capital inflows.
FX option expiries for Mar 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
EUR/USD: EUR amounts
USD/JPY: USD amounts
Statistics Canada will release February Consumer Price Index (CPI) data on Tuesday, March 19 at 12:30 and as we get closer to the release time, here are the forecasts by the economists and researchers of five major banks regarding the upcoming Canadian inflation data.
The annual headline CPI is anticipated to have accelerated to 3.1% from 2.9% in January. If so, inflation would move further above the 2% target which means the BoC can be patient before loosening policy.
We look for headline CPI to push back above the target range to 3.1% YoY in February after last month's deceleration, reflecting the contributions of higher energy prices, a mild rebound in core goods, and persistence across shelter components, as stagnant core inflation measures suggest little progress on underlying inflation ahead of the April BoC decision.
Both headline and core (ex-food and energy) inflation are expected to come in at 3.1% YoY with headline up from 2.9% in January on higher energy inflation. Gasoline prices rose by nearly 4% in February from a month ago. Still, a very soft economic backdrop means that price pressures in Canada are more likely to keep easing and narrowing, allowing for a first rate cut from the BoC to also come in June.
The increase in gasoline prices during the month may translate into a 0.4% gain for the headline index before seasonal adjustment, which could make the 12-month rate increase from 2.9% to 3.1%. Similarly to the headline print, the core measures preferred by the Bank of Canada could strengthen, with CPI-med likely moving from 3.3% to 3.4%, and CPI-trim from 3.4% to 3.5%.
After a surprisingly soft reading of a flat headline CPI in January, we expect a solid bounce-back of 0.6% MoM in February. Part of this strength would reflect usual seasonal patterns where prices rise in the early months of the year. The most important element of monthly CPI reports will continue to be the core inflation measures, CPI-trim and CPI-median, and specifically the average annualized three-month pace of the core measures. Given somewhat stronger February data and a strong increase in December that will still be included in the three-month calculation, three-month core inflation will likely remain close to 3% in February. With February CPI the last release before the BoC’s April meeting, a cut at that meeting remains very unlikely.
Higher prices at the pump in February likely helped push headline CPI up a tick to 3.0% YoY, reflecting a 0.6% NSA monthly increase. That would also include an acceleration in ex. food/energy prices to 0.3% MoM SA, as some volatile segments that showed large declines in January (clothing, airfares) could have seen a turnaround in February, adding to increases in shelter prices. Looking beyond the volatility, however, price increases likely weren’t any more broad based, reflecting soft consumer demand, and we therefore expect 12-month CPI trim and median to both be unchanged.
Here is what you need to know on Tuesday, March 19:
The volatility surrounding the Japanese Yen and the Australian Dollar heightened during the Asian trading hours on Tuesday as investors assessed the monetary policy announcements from the Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA). Later in the day, ZEW Survey from Germany and Consumer Price Index (CPI) data from Canada will be watched closely by market participants. The US economic docket will feature Building Permits and Housing Starts figures for February.
The BoJ announced that it lift the interest rate by 10 basis points (bps) from -0.1% to 0% and abandoned its yield curve control (YCC) strategy. Both of these decisions came in line with the market expectation. In its policy statement, the BoJ further noted that it will apply a 0.1% interest to all excess reserves parked with the JPY and said that it will use the short-term interest rates as its primary policy tool. USD/JPY rose sharply with the immediate reaction and was last seen rising nearly 1% on the day above 150.00.
Japanese Yen adds to post-BoJ losses, eyes YTD low.
In the post-meeting press conference, BoJ Governor Kazuo Ueda said that they will continue buying broadly the same amount of Japanese government bonds as before and added that they will consider options for easing broadly, including the ones used in the past if needed.
Ueda Speech: BoJ Governor speaks on interest rate outlook after historic hike.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the US Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.06% | 0.14% | 0.23% | 0.61% | 0.81% | 0.54% | 0.20% | |
EUR | -0.07% | 0.09% | 0.15% | 0.55% | 0.76% | 0.49% | 0.15% | |
GBP | -0.17% | -0.11% | 0.06% | 0.46% | 0.64% | 0.36% | 0.04% | |
CAD | -0.23% | -0.17% | -0.08% | 0.38% | 0.59% | 0.31% | -0.02% | |
AUD | -0.62% | -0.55% | -0.48% | -0.39% | 0.22% | -0.07% | -0.41% | |
JPY | -0.84% | -0.75% | -0.70% | -0.62% | -0.20% | -0.27% | -0.61% | |
NZD | -0.57% | -0.51% | -0.44% | -0.34% | 0.04% | 0.26% | -0.37% | |
CHF | -0.23% | -0.16% | -0.09% | 0.01% | 0.39% | 0.59% | 0.31% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The RBA left the policy rate unchanged at 4.35% after the March policy meeting, as widely anticipated. In the policy statement, the RBA noted that higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy. "While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain," the RBA added.
Bullock Speech: RBA Governor sheds light on interest rate path after standing pat.
RBA Governor Michele Bullock said that they need to be much more confident on inflation coming down to consider a rate cut. AUD/USD came under bearish pressure following the RBA event was last trading slightly above 0.6500, losing more than 0.5% on the day.
Australian Dollar depreciates amid a higher ASX 200, RBA's Bullock remains cautious.
After closing in positive territory for the fourth consecutive day on Monday, the US Dollar Index continues to stretch higher toward 104.00 in the early European session on Tuesday. Meanwhile, the benchmark 10-year US Treasury bond yield holds steady above 4.3% and US stock index futures trade marginally lower.
EUR/USD registered small losses on Monday and edged slightly lower early Tuesday. The pair holds above 1.0850 ahead of economic sentiment data.
GBP/USD stays on the back foot and closes in on 1.2800 in the early European session on Tuesday. The UK's Office for National Statistics will release Consumer Price Index data on Wednesday.
Gold failed to gather directional momentum and closed the first day of the week virtually unchanged. The resilience of US Treasury bond yields make it difficult for XAU/USD to gain traction, which was last seen fluctuating in a narrow channel below $2,160.
Gold price seems vulnerable near one-week low amid hawkish Fed expectations.
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Following the Bank of Japan's first historic interest rate hike at the March policy meeting, BoJ Governor Kazuo Ueda is addressing a post-policy meeting press conference on Tuesday.
Likelihood of achieving 2.0% inflation target is still not 100% but it's rising.
Stock effect of BoJ’s JGB holdings on long-term rates cannot be ignored.
But we will not use JGB buying operations, balance adjustment as proactive monetary policy tool.
Mindful of risks of sudden spikes in interest rates.
We always have taylor rules in mind when conducting monetary policy.
Outcome of spring wage negotiations was big factor.
developing story ...
USD/JPY was last seen trading at 150.37, adding 0.83% on the day.
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
Following the Bank of Japan's first historic interest rate hike at the March policy meeting, BoJ Governor Kazuo Ueda said that the Bank “will continue buying 'broadly same amount' of JGB as before.”
Judged sustainable, stable achievement of 2.0% inflation target comes in sight.
Accommodative conditions will firmly underpin economy, prices.
Will consider options for easing broadly including ones used in past if needed.
Confirmed virtuous cycle of wages, prices.
Massive monetary easing such as yield curve control, negative rates fulfilled roles.
Accommodative financial conditions will be maintained for the time being.
Decided to shift massive monetary policy as we judge achievement of 2% inflation is in sight.
Will set short-term interest rates just like other central banks that use short-term rates as policy tool.
Important to keep easy environment in place considering distance to 2% target in terms of inflation expectations.
We will carry out 'regular' monetary policy.
Not thinking of setting a name for new policy framework, since it is a 'regular' monetary operation.
Pace of further rate hike depends on economy, price outlooks.
USD/JPY keeps the upside momentum intact following these comments and the pair was last seen 0.87% higher on the day at 150.42.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The NZD/USD pair remains under some selling pressure during the early European session on Tuesday. The uptick in the US Dollar Index (DXY) to two-week highs above 103.80 weighs on the NZD/USD pair. Markets are in a cautious mood ahead of the Federal Reserve's (Fed) monetary policy meeting on Wednesday. The pair currently trades around 0.6053, down 0.53% on the day.
The US economic data in recent weeks indicated that the US economy is strong and inflation remains elevated. The data might convince the Fed to delay the interest rate cuts, which lift the US Dollar (USD) broadly. Fed Chairman Jerome Powell said he was not concerned about inflation data that remains above the central bank’s target, as the Fed’s preferred gauge has eased notably over the past year.
Markets expect the Fed to leave interest rates unchanged for a fifth straight time at the end of its two-day meeting on Wednesday. Powell stated that the Fed is likely to cut its key interest rate this year, but he wants to see more evidence that inflation is falling sustainably back to the 2% target. Financial markets have priced in a nearly 73% chance that the Fed will cut rates in July, according to the CME FedWatch Tools.
On the Kiwi front, Chinese Foreign Minister Wang Yi said on Tuesday that China is ready to work with New Zealand to implement an upgraded version of the China-New Zealand free trade agreement. However, this positive headline failed to boost the China-proxy New Zealand Dollar (NZD).
Looking ahead, traders will keep an eye on New Zealand’s Westpac Consumer Survey for the first quarter (Q1), due on Wednesday, followed by the Current Account. The Fed interest rate decision and the press conference will be the highlight for this week, On Thursday, the focus will turn to the New Zealand Gross Domestic Product (GDP) for Q4, which is expected to grow 0.1% QoQ.
European Central Bank (ECB) Vice President Luis de Guindos, said in an interview on Tuesday, “services inflation is stickier. And that’s why we need to wait.”
Evolution of wages is key. We will have more information in June.
We do look at what is happening in the US economy. But we are data-dependent not Fed-dependent.
At the time of writing, EUR/USD is nursing losses near 1.0865, down 0.07% on the day.
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Canada is slated to unveil the always-relevant inflation-related figures on Tuesday. Statistics Canada will release the Consumer Price Index (CPI) for the month of February, with expectations pointing towards a year-on-year rise of 3.1% in the headline print, slightly surpassing January’s 2.9% increase. Monthly projections anticipate a 0.6% increase in the index compared to the previous month's flat reading.
Alongside the CPI data, the Bank of Canada (BoC) will release its Core Consumer Price Index gauge, which excludes volatile elements like food and energy costs. In January, the BoC Core CPI indicated a monthly uptick of 0.1% and a year-on-year rise of 2.4%.
These statistics will be closely monitored as they could influence the trajectory of the Canadian Dollar (CAD) and shape outlooks regarding the Bank of Canada's monetary policy. Speaking about the Canadian Dollar (CAD), it has shown weakness against the US Dollar (USD) in past sessions and presently hovers around multi-session lows well past the 1.3500 yardstick.
Analysts expect a pick-up of price pressures throughout Canada during last month. In fact, inflation measured by annual changes in the Consumer Price Index, is forecast to resume its upward trajectory in February, mirroring trends observed in many of Canada's G10 counterparts, notably its neighbour, the US. After reaching 4% in August, the CPI has shown a downward trend, with the exception of the bounce recorded in the last month of the year. All in all, inflation indicators still remain well above the Bank of Canada's 2% target.
Should the forthcoming data confirm the anticipated increase in inflationary pressures, investors might consider the possibility of the central bank keeping the current restrictive stance in place for a longer duration than originally predicted. Still, any additional tightening of monetary conditions seems unlikely, as per comments from the bank’s officials.
The latter situation would necessitate a sudden and sustained resurgence of price pressures and a rapid increase in consumer demand, both of which seem improbable in the foreseeable future.
During his remarks at the latest BoC meeting, Governor Tiff Macklem expressed optimism about the ongoing battle against inflation, noting current progress and anticipating further advancements. He highlighted the significance of core inflation measures, suggesting that if they remain unchanged, the forecasts for overall inflation reduction may not come to fruition. He assessed the risks to the inflation outlook as reasonably balanced and noted that well-anchored inflation expectations are aiding efforts to bring inflation back under control.
On Tuesday at 12:30 GMT, Canada is set to release the Consumer Price Index for February. The Canadian Dollar's potential response is tied to changes in monetary policy expectations by the Bank of Canada. However, barring any real surprise in either direction, the BoC is unlikely to change its current cautious monetary policy stance, in line with other central banks such as the Federal Reserve (Fed).
The USD/CAD has started the new trading year in quite a bullish fashion, although the uptrend appears to have met a decent barrier around the 1.3600 zone.
Pablo Piovano, Senior Analyst at FXStreet, says: “There is a strong likelihood of USD/CAD maintaining the constructive bias as long as it remains above the significant 200-day Simple Moving Average (SMA) at 1.3479. The bullish sentiment is expected to strengthen even more if there is a sustained break above the so-far yearly tops around 1.3600. On the flip side, the breach of the 200-day SMA could open the door to extra losses and a potential move to the January low of 1.3358 (January 31). South from here, there are no support levels of note prior to the December 2023 bottom of 1.3177, which occurred on December 27”.
Pablo adds: "Significant increases in volatility around CAD would require unexpected inflation figures. If the numbers fall below expectations, it could strengthen the argument for potential interest rate cuts by the BoC in the next few months, further appreciating USD/CAD. However, a rebound in the CPI, similar to trends observed in the US, might provide some support to the Canadian Dollar, although to a limited extent. A higher-than-anticipated inflation reading would intensify pressure on the Bank of Canada to maintain elevated rates for an extended period, potentially resulting in prolonged challenges for many Canadians dealing with higher interest rates, as highlighted by Bank of Canada Governor Macklem."
The Consumer Price Index (CPI), released by Statistics Canada on a monthly basis, represents changes in prices for Canadian consumers by comparing the cost of a fixed basket of goods and services. The MoM figure compares the prices of goods in the reference month to the previous month. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.
Read more.The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies in the last 7 days. Canadian Dollar was the weakest against the .
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.48% | 0.96% | 0.44% | 0.93% | 1.69% | 1.46% | 0.86% | |
EUR | -0.50% | 0.46% | -0.06% | 0.43% | 1.20% | 0.98% | 0.37% | |
GBP | -0.97% | -0.48% | -0.53% | -0.03% | 0.74% | 0.52% | -0.09% | |
CAD | -0.44% | 0.07% | 0.52% | 0.48% | 1.22% | 1.03% | 0.39% | |
AUD | -0.94% | -0.45% | 0.03% | -0.50% | 0.77% | 0.55% | -0.06% | |
JPY | -1.69% | -1.22% | -0.49% | -1.27% | -0.76% | -0.21% | -0.83% | |
NZD | -1.48% | -0.99% | -0.52% | -1.05% | -0.54% | 0.22% | -0.61% | |
CHF | -0.89% | -0.40% | 0.08% | -0.43% | 0.05% | 0.81% | 0.59% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The S&P/ASX 200 Index continues its upward momentum, marking the third consecutive session of gains. Trading higher around 7700, up approximately 0.27% on Tuesday. Meanwhile, the Reserve Bank of Australia (RBA) has maintained the policy rate at 4.35% for the third consecutive meeting, as announced during its March policy meeting.
The Australian equity market is buoyed by gains in the energy and real estate sectors. Mining and energy stocks are primarily on the rise due to stronger commodity prices. The top-performing stocks are Nickel Industries Limited and Bellevue Gold Limited, which have surged by 7.43% and 6.71%, respectively.
On the other hand, companies with the lowest percentage returns include Reward Minerals Ltd, which plummeted by 40.0%, Oldfields Holdings Ltd down by 27.27%, and Resource Mining Corporation Ltd, which fell by 21.74%.
The S&P/ASX200 VIX is notably lower today, decreasing by 4.35% to 10.85, reaching a new 50-day low. Conversely, the All Ordinaries Index is on the rise, gaining 32.60 points to reach 7,961.40.
RBA Governor Michele Bullock addressed the policy outlook during a press conference following the monetary policy decision on Tuesday. She noted progress in the fight against inflation, citing recent data indicating the country is on the right track.
However, Governor Bullock emphasized the importance of closely monitoring employment numbers. She highlighted that risks to the outlook are finely balanced and cautioned that the battle against inflation is not yet won. Additionally, markets are cautiously awaiting policy decisions from the Federal Reserve.
The EUR/USD pair trades on a negative note during the early European session on Tuesday. The major pair moves in a narrow range between 1.0866 and 1.0876 as traders prefer to wait on the sidelines ahead of the Federal Reserve's (Fed) interest rate decision on Wednesday. At the press time, EUR/USD is trading at 1.0871, down 0.01% on the day.
Technically, EUR/USD maintains the bearish outlook unchanged as the major pair is below the key 50- and 100-period Exponential Moving Averages (EMA) on the four-hour chart. Furthermore, the downward momentum is further confirmed by the Relative Strength Index (RSI), which lies below the 50-midline, indicating that further downside looks favorable.
The first downside target for the major pair is located near the lower limit of the Bollinger Band at 1.0852. Further south, the next contention level is seen at the 1.0800 mark, representing the confluence of a low of February 22 and a psychological mark. A breach of this level will expose a low of February 20 at 1.0761, and finally a low of February 15 at 1.0725.
On the other hand, the initial resistance level will emerge at the 100-period EMA at 1.0882. The critical upside barrier to watch for EUR/USD is the 1.0900-1.0905 region, portraying the 50-period EMA, psychological figure, and a high of March 18. A bullish breakout above the latter will see a rally to the upper boundary of the Bollinger Band at 1.0926, followed by a high of March 14 at 1.0955.
West Texas Intermediate (WTI) US Crude Oil prices edge lower during the Asian session on Tuesday and revers a part of the previous day's strong gains to the $82.45 area, or the highest level since early November. The commodity currently trades around the $82.00/barrel mark, though the downside seems limited in the wake of worries about tightening supply.
Ukrainian drone strikes on Russian oil refineries over the last week could lead to higher crude oil exports from Russia. This, in turn, prompts bullish traders to take some profits off the table after the recent strong run-up witnessed over the past week or so and slightly overstretched conditions on short-term charts. Apart from this, sustained US Dollar (USD) buying, bolstered by bets that the Federal Reserve (Fe) will stick to its higher-for-longer interest rates narrative to bring down inflation, exerts downward pressure on the commodity.
Furthermore, growing concerns about a global economic slowdown, which could dent fuel demand, turn out to be another factor weighing on Crude Oil prices. Meanwhile, lower crude exports from Saudi Arabia and Iraq, along with disruptions caused by Houthi attacks in the Red Sea, could act as a tailwind for the black liquid and help limit the corrective slide. Hence, it will be prudent to wait for strong follow-through selling before confirming that the commodity has topped out in the near term and positioning for deeper losses.
Reserve Bank of Australia (RBA) Governor Michele Bullock is speaking on the policy outlook at a press conference following the announcement of the March monetary policy decision on Tuesday.
Bullock is responding to questions from the media, as part of a new reporting format for the central bank.
We are making progress in fight against inflation.
Recent data suggest we are on right track.
Keeping keen eye on employment numbers.
Risks to outlook are finely balanced.
War isnt yet won on inflation.
Change statement language in response to data.
Labour market still slightly on tight side.
Board sees risks on both sides for policy.
Unemployment rate not only thing we look at.
Need to be much more confident on inflation coming down to consider rate cut.
Easing in energy prices is really positive for inflation outlook.
The board considers a range of possibilities on policy.
developing story ....
AUD/USD is holding lower ground near 0.6530 on the above comments, down 0.31% on the day.
The EUR/JPY cross gains traction above the mid-162.00s during the Asian trading hours on Tuesday. The cross drifts higher after the Bank of Japan (BoJ) decided to end a negative interest rate era that began in 2016, in line with market expectations. At press time, EUR/JPY is trading at 162.77, adding 0.37% on the day.
After the two-day monetary policy meeting on Tuesday, the BoJ decided to raise the interest rate by 10 basis points (bps) from -0.1% to 0% for the first time since 2007. The decision was in line with market expectations. The BoJ policy statement showed that, given the current outlook for economic activity and prices, the BoJ anticipates accommodative financial conditions to be maintained for the time being. In response to the interest rate decision, the Japanese Yen attracts some sellers as the hawkish policy was widely priced in by the markets.
The European Central Bank (ECB) held the interest rate steady at its March meeting. However, the ECB policymakers signaled progress in easing inflation and started discussions about the timeline of the rate cut. The ECB Pablo Hernandez de Cos said that the central bank may start lowering interest rates in June if inflation in the eurozone continues to cool down. The ECB Governing Council member Klaas Knot penciled in June for a first-rate cut and expects three rate cuts this year.
Moving on, market players will focus on the German and Eurozone ZEW Survey, due later on Tuesday. Later this week, the German Producer Price Index (PPI) and the ECB's Lagarde speech will be in focus on Wednesday. On Thursday, the Eurozone HCOB PMI data for March will be released. These events could give a clear direction to the EUR/JPY cross.
GBP/JPY has rebounded from intraday losses to extend its winning streak, which commenced on March 12. The pair trades higher around 190.30 during Asian trading hours on Tuesday. The Bank of Japan (BoJ) board members opted to raise the interest rate by 10 basis points (bps) from -0.1% to 0% for the first time since 2007.
This decision marks the end of a negative interest rate era. It aligns with market expectations. The much stronger-than-expected pay hikes by major Japanese firms have already laid the groundwork for the BoJ to shift away from the decade-long stimulus measures.
In the United Kingdom (UK), inflation is showing signs of moderation, yet the Bank of England (BoE) maintains a cautious stance until Consumer Prices return to the 2% target. It is expected that the BoE will keep interest rates unchanged at 5.25% during Thursday's meeting. Traders are eagerly awaiting consumer and producer price data scheduled for release on Wednesday.
Due to softer Consumer Inflation Expectations on Friday, which increased by 3.0% but slightly lower than the previous uptick of 3.3%, market speculation arose regarding a potential Bank of England (BoE) rate cut. Investors anticipate the BoE to commence rate cuts in August, with one or two additional cuts by year-end. Such sentiment could have weakened the Pound Sterling (GBP) and undermined the GBP/JPY cross.
The AUD/JPY cross continues with its struggle to find acceptance above the 98.00 mark and surrenders Asian session gains to over a one-week high. Spot prices drop to a fresh daily low after the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) announced their policy decisions, albeit manage to attract fresh buyers in the vicinity of mid-97.00s.
As was unanimously expected, the Australian central bank decided to keep the Official Cash Rate (OCR) unchanged at the end of the March policy meeting. The Australian Dollar (AUD), however, started losing traction in the absence of any fresh hawkish signals, though signs of improving relations between Australia and China – the former's biggest trading partner – help limit further losses.
Meanwhile, the BoJ announced lifting the interest rate by 10 basis points (bps) from -0.1% to 0% for the first time since 2007, ending the negative interest rate era that began in 2016. The BoJ also scrapped its Yield Curve Control (YCC) policy at the conclusion of its two-day monetary policy meeting. The decision, however, was broadly in line with the market expectations and did little to influence the JPY.
Investors now look forward to the post-meeting press conference, where comments by BoJ Governor Kazuo Ueda will play a key role in influencing the JPY price dynamics and provide some meaningful impetus to the AUD/JPY cross. The mixed fundamental backdrop, meanwhile, makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move.
The AUD/NZD cross holds below the 1.0800 mark during the Asian session on Tuesday. The cross edges lower following the Reserve Bank of Australia (RBA) interest rate decision. The Australian central bank decided to leave the interest rate unchanged on Tuesday. Traders will take more cues from the RBA press conference. AUD/NZD currently trades around 1.0770, losing 0.07% on the day.
On Tuesday, the RBA held the Official Cash Rate (OCR) steady at a 12-year high of 4.35% for the third meeting in a row after its March monetary policy meeting. The markets will focus on the fresh catalysts offered by the RBA on the timing and the scope of a policy pivot. The hawkish remarks from the central bank might lift the Australian Dollar (AUD) against the New Zealand Dollar (NZD).
On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) decided to keep the policy rate steady at 5.50% for the fifth meeting in a row in February. However, the RBNZ tones down its hawkish stance and reduces the risk of further tightening. The central bank lowered its forecast cash rate peak to 5.6% from a previous projection of 5.7%. This, in turn, exerts some selling pressure on the New Zealand Dollar (NZD) and acts as a tailwind for the AUD/NZD cross.
New Zealand’s Westpac Consumer Survey for the first quarter (Q1) will be due on Wednesday, followed by the Current Account. On Thursday, traders will closely monitor the New Zealand Gross Domestic Product (GDP) for Q4 and the Australian Judo Bank PMI for March.
Gold price (XAU/USD) struggles to capitalize on the previous day's bounce from the $2,145 region, or over a one-week low and oscillates in a range during the Asian session on Tuesday. The robust US consumer and producer inflation figures released last week fuelled speculations that the Federal Reserve (Fed) could modify its forward guidance to two 25 basis points rate cuts in 2024 instead of the three projected previously. This, in turn, remains supportive of elevated US Treasury bond yields, which underpin the US Dollar (USD) and act as a headwind for the non-yielding yellow metal.
The markets, however, are still anticipating that the Fed will begin its rate-cutting cycle as early as the June policy meeting. This, combined with ongoing geopolitical tensions, might continue to provide a floor to the Gold price and help limit the downside. Traders might also prefer to wait on the sidelines ahead of the crucial two-day FOMC monetary policy meeting starting this Tuesday. The Fed is scheduled to announce its decision on Wednesday and investors will look for fresh cues about the rate-cut path, which will play a key role in driving the USD and provide a fresh impetus to the precious metal.
From a technical perspective, the recent pullback from the record peak stalled near the $2,145-2,144 support zone, which should now act as a key pivotal point for the Gold price. A convincing break below will expose the next relevant support near the $2,128-2,127 zone before the XAU/USD extends the corrective decline further towards the $2,100 round figure.
On the flip side, the $2,175-2,176 region now seems to have emerged as an immediate strong barrier, which if cleared should allow the Gold price to challenge the record peak, around the $2,195 area touched last week. Some follow-through buying beyond the $2,200 mark will set the stage for the resumption of the uptrend witnessed since the beginning of this month.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
USD/CAD continues its upward trend for the fourth consecutive session, trading near the significant level of 1.3540. The US Dollar (USD) advances, propelled by higher US Treasury yields. Bond markets are facing selling pressure as additional signs of resilience in the United States (US) economy emerge, prompting traders to revise their expectations for fewer interest rate cuts this year.
According to the CME FedWatch Tool, the probability of a rate cut in March stands at 1.0%, and 8.7% for May. The likelihood of rate cuts in June and July is lower, at 55.1% and 73.7%, respectively.
The US Dollar Index (DXY) continues its upward trajectory, with 2-year and 10-year US yields at 4.73% and 4.32%, respectively. Investors are eagerly awaiting the interest rate decision from the US Federal Reserve (Fed), expected to be announced on Wednesday. The Fed is anticipated to uphold its elevated interest rates in response to recent inflationary pressures.
The Canadian Dollar (CAD) might have found support from the surge in Crude oil prices, considering Canada's status as the largest oil exporter to the United States (US). West Texas Intermediate (WTI) hovers around $82.10 per barrel, nearing its highest levels since early November, bolstered by ongoing supply-side worries.
On Monday, the Canadian stock market closed slightly lower as investors awaited Canada's Consumer Price Index (CPI) data scheduled for Tuesday. There are expectations for an uptick in Canadian consumer prices.
Indian Rupee (INR) weakens on Tuesday on US Dollar (USD) purchases by state-run banks. The lower speculation that the US Federal Reserve (Fed) may cut interest rates in June provides some support to the Greenback and lifts the USD/INR pair. The Fed is widely anticipated to hold rates steady for a fifth straight time at its March meeting on Wednesday and maintain a data approach to ensure inflation returns sustainably to its 2% target. Nonetheless, there is still a possibility that Fed officials might reduce the number of rate cuts to two from the three rate cuts they expected earlier this year.
Looking ahead, the US February Building Permits and Housing Starts are due on Tuesday. Investors will closely watch the US Fed interest rate decision on Wednesday and take more cues about the future trajectory of interest rates from Fed Chair Jerome Powell during the press conference. On Thursday, India’s S&P Global Manufacturing and Services PMI will be released.
Indian Rupee trades on a weaker note on the day. USD/INR sticks to the range bound theme within a multi-month-old descending trend channel around 82.60–83.15 since December 8, 2023.
From a technical perspective, the bearish outlook of USD/INR remains intact in the near term as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. However, the 14-day Relative Strength Index (RSI) returns above the 50.0 midline, indicating that further upside cannot be ruled out.
The first upside barrier will emerge near the 100-day EMA and a psychological mark at 83.00. Further strength could draw in USD/INR bulls and inspire another upswing to the upper boundary of the descending trend channel near 83.15. A decisive break above this level will see a rally to 83.35 (high of January 2), followed by the 84.00 round figure.
On the flip side, the initial support level for USD/INR is seen near a low of March 14 at 82.80. The key contention level is located at the lower limit of the descending trend channel at 82.60. Any follow-through selling could extend the pair’s downtrend to 82.45 (low of August 23), en route to 82.25 (low of June 1).
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.01% | 0.01% | 0.03% | -0.02% | 0.08% | 0.07% | 0.08% | |
EUR | 0.00% | 0.01% | 0.02% | -0.02% | 0.10% | 0.07% | 0.09% | |
GBP | -0.01% | -0.02% | 0.02% | -0.03% | 0.07% | 0.05% | 0.07% | |
CAD | -0.03% | -0.03% | 0.00% | -0.05% | 0.07% | 0.04% | 0.06% | |
AUD | 0.02% | 0.01% | 0.03% | 0.05% | 0.12% | 0.09% | 0.10% | |
JPY | -0.10% | -0.06% | -0.09% | -0.08% | -0.10% | 0.01% | 0.00% | |
NZD | -0.06% | -0.08% | -0.06% | -0.04% | -0.09% | 0.03% | 0.01% | |
CHF | -0.09% | -0.10% | -0.08% | -0.06% | -0.11% | 0.00% | -0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
Raw materials | Closed | Change, % |
---|---|---|
Silver | 25.034 | -0.21 |
Gold | 2160.106 | 0.32 |
Palladium | 1029.36 | -4.14 |
The Japanese Yen (JPY) drifts lower for the sixth straight day on Tuesday and weakens to a nearly two-week low against its American counterpart during the Asian session. Growing acceptance that the Bank of Japan (BoJ) will wait until April to exit the negative interest rate policy and the Yield Curve Control (YCC) turns out to be a key factor undermining the JPY. Apart from this, a modest US Dollar (USD) strength, bolstered by reduced bets for steep interest rate cuts by the Federal Reserve (Fed), lifts the USD/JPY pair closer to mid-149.00s.
Meanwhile, the much-stronger-than-expected pay hikes by major Japanese firms already seem to have set the stage for the BoJ to pivot away from the decade-long stimulus measures, which should act as a tailwind for the JPY. Traders might also refrain from placing aggressive directional bets and prefer to move to the sidelines ahead of the key central bank event risks. The BoJ is scheduled to announce its highly-anticipated decision in a short while from now, which will be followed by the crucial two-day FOMC monetary policy meeting starting later today.
From a technical perspective, the USD/JPY pair is holding above the 61.8% Fibonacci retracement level of the February-March downfall and seems poised to climb further. The constructive outlook is reinforced by the fact that oscillators on the daily chart have just started gaining positive traction. Hence, some follow-through strength towards the 149.75-149.80 horizontal barrier, en route to the 150.00 psychological mark, looks like a distinct possibility. A sustained strength beyond the latter might trigger a fresh bout of a short-covering move towards the 150.65-150.70 region before bulls aim to retest the YTD peak, around the 151.00 mark touched on February 13.
On the flip side, the 149.00 round-figure mark now seems to have emerged as an immediate support. Any further slide is more likely to attract some dip-buying and remain limited near the 148.30 region. This is followed by the 148.00 round figure, below which the USD/JPY pair could accelerate the downfall towards the 100-day Simple Moving Average (SMA), currently pegged near the 147.65 region. A convincing break below might shift the bias in favour of bearish traders and drag spot prices further towards the 147.00 mark en route to the monthly swing low, around the 146.50-146.45 region.
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
The Australian Dollar (AUD) hovers around the key level of 0.6550 amid subdued trading activity as market participants exercise caution ahead of the Reserve Bank of Australia's (RBA) interest rate decision on Tuesday. Investors will closely monitor RBA Governor Michele Bullock's press conference for further insights. The central bank is widely anticipated to maintain interest rates at their current levels.
The Australian equity market, the benchmark S&P/ASX 200 Index, has edged higher after starting the session positively, driven by gains in the energy and real estate sectors. This upward movement in the stock market may provide support for the Australian Dollar (AUD). Australia's economy expanded less than anticipated in the fourth quarter of 2023, leading to speculation that the Reserve Bank of Australia could initiate rate cuts later this year.
The US Dollar Index (DXY) strives to extend its gains for the fourth consecutive session, bolstered by an uptick in US Treasury yields. Bond markets have experienced a sell-off following additional evidence of resilience in the United States (US) economy, compelling traders to adjust their expectations for fewer interest rate cuts this year. Investors are eagerly awaiting interest rate decisions from both the People's Bank of China (PBoC) and the US Federal Reserve (Fed), which are anticipated to be announced on Wednesday.
The Australian Dollar remains close to the significant threshold of 0.6550 On Tuesday. A breach below this level might prompt downward momentum for the AUD/USD pair, with additional support anticipated around the 61.8% Fibonacci retracement level of 0.6528, and thereafter at the psychological support level of 0.6500. On the upside, the AUD/USD pair could encounter resistance near the nine-day Exponential Moving Average (EMA) at 0.6571, followed by the psychological hurdle at 0.6600.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.03% | 0.06% | 0.08% | 0.11% | 0.12% | 0.17% | 0.11% | |
EUR | -0.03% | 0.02% | 0.04% | 0.08% | 0.09% | 0.12% | 0.08% | |
GBP | -0.04% | -0.01% | 0.02% | 0.06% | 0.06% | 0.09% | 0.05% | |
CAD | -0.08% | -0.04% | 0.00% | 0.03% | 0.05% | 0.09% | 0.04% | |
AUD | -0.09% | -0.08% | -0.06% | -0.04% | 0.02% | 0.08% | -0.02% | |
JPY | -0.13% | -0.07% | -0.07% | -0.06% | 0.01% | 0.06% | 0.00% | |
NZD | -0.14% | -0.11% | -0.09% | -0.06% | -0.03% | -0.01% | -0.05% | |
CHF | -0.10% | -0.07% | -0.05% | -0.03% | 0.01% | 0.02% | 0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate, and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Chinese Foreign Minister Wang Yi, during his visit to New Zealand on Tuesday, said that “China is ready to work with New Zealand to implement an upgraded version of the China-New Zealand free trade agreement.”
Two sides should launch negotiations on negative list of service trade as soon as possible, so as to push bilateral cooperation to a new level.
China-New Zealand relations maintain a leading position among China's relations with developed countries.
Despite the upbeat headlines, NZD/USD is losing 0.17% on the day to trade at 0.6071, as of writing.
On Tuesday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.0985 as compared to the previous day's fix of 7.0943 and 7.2056 Reuters estimates.
Index | Change, points | Closed | Change, % |
---|---|---|---|
NIKKEI 225 | 1032.8 | 39740.44 | 2.67 |
Hang Seng | 16.23 | 16737.12 | 0.1 |
KOSPI | 19 | 2685.84 | 0.71 |
ASX 200 | 5.5 | 7675.8 | 0.07 |
DAX | -3.97 | 17932.68 | -0.02 |
CAC 40 | -16.21 | 8148.14 | -0.2 |
Dow Jones | 75.66 | 38790.43 | 0.2 |
S&P 500 | 32.33 | 5149.42 | 0.63 |
NASDAQ Composite | 130.28 | 16103.45 | 0.82 |
The EUR/USD pair edges lower to multi-day lows around 1.0870 on the firmer US Dollar (USD) during the early Asian session on Tuesday. The Federal Reserve (Fed) monetary policy meeting on Wednesday will be in the spotlight, with no change in rates expected. Meanwhile, the cautious mood in the market might lift the Greenback against the Euro (EUR). The major pair currently trades around 1.0872, unchanged for the day.
The recent US economic data showed inflation in the US economy remains elevated, and this pushed out market expectations for the first rate cut in June. The Fed Chairman Jerome Powell said two weeks ago that the central bank is not far from the confidence it needs to cut rates, while some Fed officials expect the first rate cut could happen later this year or during the summer.
The Fed will announce its interest rate decision on Wednesday, which is anticipated to hold benchmark interest rates steady in the range of 5.25%–5.50% at its March meeting. Investors have priced in a nearly 73% chance that the Fed will cut rates in July, according to the CME FedWatch Tools.
The European Central Bank (ECB) decided to keep borrowing costs at a record high at its March meeting. Nonetheless, the central bank policymakers signaled progress in easing inflation and began discussions about the rate cut. The ECB Governing Council member, Pablo Hernandez de Kos, said that the central bank may start lowering interest rates in June if inflation in the eurozone continues to decline. Meanwhile, ECB policymaker Mario Centeno stated that cutting borrowing costs could help prevent a euro area recession.
Additionally, ECB Governing Council member Klaas Knot penciled in June for a first-rate cut and expects three rate cuts this year, while ECB President Christine Lagarde said that June is the earliest it is likely to cut interest rates after the ECB lowered its forecasts for inflation and estimated it will reach its 2% target in 2025.
Looking ahead, market players will keep an eye on the German and Eurozone ZEW Survey on Tuesday. Also, the US Building Permits and Housing Starts will be released later in the day. The attention will shift to the Fed interest rate decision and press conference on Wednesday. Traders will take cues from this event and find trading opportunities around the EUR/USD pair.
Pare | Closed | Change, % |
---|---|---|
AUDUSD | 0.65573 | -0.06 |
EURJPY | 162.128 | -0.09 |
EURUSD | 1.0873 | -0.16 |
GBPJPY | 189.786 | -0 |
GBPUSD | 1.27271 | -0.07 |
NZDUSD | 0.60824 | -0.06 |
USDCAD | 1.35337 | -0.05 |
USDCHF | 0.88759 | 0.52 |
USDJPY | 149.113 | 0.06 |
Japanese Finance Minister Shunichi Suzuki said on Tuesday that it depends on the Bank of Japan (BoJ) to decide the details of monetary policy. Suzuki further stated that he saw positive economic signs, including wage growth and corporate spending.
“Won't comment on any BOJ policy steps to be taken.”
“It’s up to the Bank of Japan to decide specifics of monetary policy.”
“This year's wage negotiations yielding record-high wage growth so far.”
“We are clearly seeing good signs in the economy such as robust corporate spending appetite.”
“The government will deploy various policies so that positive momentum in wages continues.”
At the time of writing, USD/JPY is trading 0.02% lower on the day at 149.13.
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
CURRENCY MARKET DEFINITION
The concept of currency market has several definitions:
Simply put, currency market is the market where currency transactions are made, that is, the currency of one country is exchanged for the currency of another country at a certain exchange rate. The exchange rate is the relative price of currencies of two countries or the currency of one country expressed in another country's monetary units.
Currency market is part of the global financial market, where many operations related to the global movement of capital take place.
TYPES OF MARKETS. RUSSIAN AND INTERNATIONAL CURRENCY MARKETS
There are international and domestic currency markets.
Domestic currency market — is a market within a single country.
The international currency market — is a global market that covers currency markets of all countries in the world. It does not have a specific site where trading is carried out. All operations within it are carried out through a system of cable and satellite channels that link the world's regional currency markets. Regional markets today include the Asian (with centers in Tokyo, Hong Kong, Singapore, and Melbourne), the European (London, Frankfurt am Main, and Zurich), and the American (New York, Chicago, and Los Angeles) markets.
Currency trading on the international currency market is carried out on the basis of market exchange rates, which are set on the basis of supply and demand in the market and under the influence of various macroeconomic data. Forex is the international currency market.
Currency markets can also be divided into exchange and over-the-counter markets. Exchange currency market is an organized market where trading is carried out through an exchange—a special company that sets trading rules and provides all the conditions for organizing trading under these rules.
Over-the-counter currency market — is a market where there are no certain trading rules, and purchase and sale operations are not linked to a specific place of trade, as opposed to the case of an exchange.
As a rule, an over-the-counter currency market is organized by special companies that provide services for the purchase and sale of currencies, which may or may not be members of the currency exchange. Trading operations in this market are now carried out mainly via the Internet.
The over-the-counter currency market is much larger than the exchange market in terms of trading volume. The Forex international over-the-counter currency market is considered the most liquid in the world. It operates around the clock in all financial centers of the world (from New York to Tokyo).
CURRENCY MARKET FUNCTIONS
Currency market— is the most important platform for ensuring the normal course of all global economic processes.
The main macroeconomic functions of the currency market are:
NEWS IMPACT
Various currencies are the main trading tool in the currency market. Exchange rates are formed under the influence of supply and demand in the market.
In addition to that, currency rates are influenced by many fundamental factors related to the global economic situation, events in national economies, and political decisions.
News about these factors can be found in various sources:
The more stable an economy is developing, the more stable its currency is. Accordingly, it is possible to predict how the currency will behave in the near future, based on statistical data published in official sources of countries with a certain regularity.
This data includes:
Interest rate level, set by national authorities regulating credit policy, is an equally important indicator. In the European Union, this is ECB–the European Central Bank, in the US, this is the Federal Reserve System, in Japan—the Bank of Japan, in the UK—the Bank of England, in Switzerland—the Swiss national Bank, etc.
The interest rate level is determined at meetings of the national central bank. Then, the decision on the rate is published in official sources. If the central bank of a country reduces the interest rate, the money supply in the country increases, and the national currency depreciates against other world currencies. If the interest rate increases, the national currency will strengthen.
A speech or even a separate statement by a country's leader can reverse a trend. Speeches on these topics may change the currency exchange rate:
All this news is published in various sources. Major international news is more or less easy to find in Russian, but news related to the domestic economic policy and the economy of foreign countries is much less common in the Russian press. Mostly, such news is published by the national media and in the language of the country where the news is published.
It is very difficult for one person to follow all the news at once, and they are likely to miss some important event that can turn the whole situation on the market upside down. Guided by our main principle—to create the best trading conditions for our customers—we try to select the most important news from all over the world and publish them on our website.
The TeleTRADE Department of Analytics monitors news on most national and international news sources on a daily basis and identifies those that can potentially affect exchange rates. These are the main news items that are included in our news feed.
In addition, all our clients have free access to the Dow Jones news feed. This is a joint project of Dow Jones Newswires, the world's largest news agency, and the leading Russian news agency Prime-TASS. The news feed is created specifically for currency traders and those who are interested in getting information about the world's currency markets.
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