Important calendar events
The dollar skyrocketed last week as US inflation data surprised to the upside and the dollar index touched the 105.3 level. US Treasury yields also rose on increased rate hike expectations, with the US 10-year bond yield climbing to 3.97%.
US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated. Core PCE, which is the Fed’s primary inflation gauge, came in hotter than expected, rising by 0.6% in January against predictions of a 0.4% raise. On an annual basis, Core PCE print came at 4.7% versus the 4.3% expected. Headline PCE year-on-year clocked in at 5.4% against expectations of a 5% print. The latest US inflation data, combined with CPI and PPI data released earlier this month, indicated that the Fed has still a long way to go to rein in inflation.
US headline inflation in January dropped to 6.4% year-on-year versus the 6.2% expected. This represents a marginal cooling from December’s 6.5% print. PPI data also surprised markets to the upside. The monthly PPI for January rose by 0.7% against expectations of a 0.4% raise and a 0.2% drop in December. January’s CPI and PPI inflation prints illustrate the danger of inflation becoming entrenched. Sticky inflation may induce the Fed to rethink its recent dovish pivot.
Minutes of the latest Fed meeting released last week was more hawkish than expected, boosting the US dollar and yields. The minutes confirmed that FOMC members believe there is still more work to tackle inflation. Even though FOMC members were in favor of reducing the pace of rate hikes, a pause in the central bank’s tightening policy does not seem to be on the cards just yet.
The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Rate hikes have become less aggressive and may continue at their current pace, but the Fed might raise interest rates for longer than previously expected. This means there are likely still a couple of rate hikes up ahead, which may support the dollar. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%.
US GDP data last week were disappointing, putting pressure on the dollar. Preliminary GDP for the final quarter of 2022 showed that the US economy expanded by 2.7% against expectations of a 2.9% growth.
This week several economic activities and health indicators are scheduled to be released and may affect dollar prices. Most importantly CB Consumer Confidence on the 28th, ISM Manufacturing PMI on March 1st, and ISM Services PMI on the 3rd.
The Euro weakened against the dollar last week, with EUR/USD dipping close to a two-month low and ending the week near 1.055. If the currency pair goes up, it may encounter resistance near 1.080. If the EUR/USD pair declines, it may find support at 1.048.
Final Annual CPI data released last week for the Eurozone were in line with expectations, showing that headline inflation rose slightly in January to 8.6% on an annual basis, from 8.5% in December. Core CPI, which excludes food and energy, surprised to the upside, hitting a record high of 5.3% against the 5.2% expected. Sticky price pressures in the Eurozone are likely to affect ECB policy, forcing the EU Central Bank to continue raising interest rates.
EU Economic Forecasts indicate that the EU economic outlook appears to be improving, with an upgraded growth forecast for 2023. The EC lifted their growth outlook for 2023 to 0.9%, indicating that the Eurozone will narrowly avoid entering recession and the economy is slowly expanding. Inflation expectations were also downgraded, with headline inflation now expected to fall to 5.6% in 2023. Flash EU GDP data for the final quarter of 2022 confirmed the EC’s forecast, showing that the Eurozone economy expanded by 0.1%.
The ECB raised interest rates by another 50 bp at its February meeting, bringing its main refinancing rate to 3.0%. ECB President Christine Lagarde has emphasized that the central bank aims to bring inflation down to its 2% target. Lagarde confirmed that another 50-bp rate hike would follow at the next monetary policy meeting in March, after which the ECB would re-evaluate its policy. Market odds are currently favoring an increase of the ECB refinancing rate to 4.0% by June.
Eurozone inflation data this week are expected to have some impact on the Euro after last week’s data showed that price pressures in the Eurozone remain high. Flash CPI Estimates are scheduled to be released on March 2nd for February, and will likely show the direction of EU inflation.
The Sterling weakened against the dollar last week and GBP/USD closed near 1.196 on Friday. If the GBP/USD rate goes up, it may encounter resistance at 1.214, while support may be found near 1.191.
Last week, CPI data showed that UK headline inflation cooled faster than anticipated in January. British CPI fell to 10.1% year-on-year in January from 10.5% in December. After last week’s optimistic inflation print, market odds are leaning towards a 25-bp rate hike at the BOE's next monetary policy meeting in March. Cooling inflation rates remove some of the pressure on the BOE to continue its economic tightening. The BOE raised interest rates by 50 bp at its February meeting, bringing the official bank rate to 4.0%.
MPC member Catherine Mann stated on Thursday that inflation risks still run high and that the central bank should continue to raise rates. MPC member Silvana Tenreyro, who is known for her dovish stance, on the other hand, warned on Friday against raising interest rates too high.
BOE members continue to be divided on the central bank’s future policy direction and market expectations on the outcome of the next policy meeting fluctuate. Markets are currently pricing in a 25-bp rate at the next BOE policy meeting. Several market participants though believe that the British central bank will pause rate hikes completely.
UK Flash Manufacturing and Services PMI exceeded expectations last week, boosting the Sterling. Manufacturing PMI rose to 49.2 in February from 47.0 in January, against expectations of a 47.5 print. Even though a reading below 50 indicates industry contraction, the British manufacturing industry seems to be improving and has achieved solid growth in January. UK Services PMI was even more optimistic in February, rising above 50 for the first time in 7 months. February’s print came at 53.3 from 48.7 in January, which is a sign of solid service sector recovery.
Recent GDP data showed that the British economy is slowing down. The British economy contracted by 0.5% in December, which was more pessimistic than the 0.3% expected. Preliminary GDP for the final quarter of 2022 showed stagnation, while GDP for 2022 came in at 4.1%. The IMF downgraded the UK’s growth forecast, predicting that the British economy will contract by 0.6% this year, which is also consistent with BOE forecasts.
The UK’s grim economic outlook limits policymakers’ ability to increase interest rates sufficiently to rein in inflation. The British economy is struggling, and policymakers will have to assess how much tightening it can withstand to bring inflation down.
This week, economic activity indicators scheduled to be released for the UK are of moderate importance. BOE rhetoric is also expected to affect the Sterling. European Commission President Ursula von der Leyen is scheduled to meet with Prime Minister Rishi Sunak this week regarding a new Brexit deal. The progress of the negotiations between the UK and the EU may cause some volatility in the price of the Sterling.
The Yen plummeted last week, with USD/JPY climbing to 136.5. If the USD/JPY pair declines, it may find support near 127.2. If the pair climbs, it may find resistance at 138.2.
The Yen exhibited high volatility last week as developments on the succession of the BOJ Governor were front and center in the news. The Yen has been pushed down by expectations of the continued dovish policy after the announcement of the Japanese Government’s nomination for the post of BOJ Governor.
Incumbent BOJ Governor Kuroda is a staunch supporter of an ultra-loose monetary policy and his term in office expires in April. Japanese Prime Minister Fumio Kishida nominated former BOJ member Kazuo Ueda for the post of BOJ governor last week. Ueda is an academic economist, and his stance is seen as more pragmatic rather than ultra-dovish.
Most market analysts consider that Ueda will likely not be in a hurry to unwind the BOJ’s ultra-easy policy, but as yet his intentions remain unclear. Ueda appeared before the Japanese government's lower house known as the Diet on Friday and again on Monday. Markets eagerly awaited his testimony for signs of a pivot in BOJ policy but as yet Ueda remains non-committal. Upcoming BOJ Governor Ueda hinted at the possibility of tweaking the central bank’s bond yield curve control in the future. However, he cautioned against sudden changes in monetary policy.
Departing BOJ Governor Haruhiko Kuroda gave a speech on the central bank’s future direction as his term in office is about to end. Kuroda expressed that the BOJ should maintain its ultra-accommodating policy to keep inflation steady. Kuroda was optimistic on the subject of Japan’s inflation, stating that inflation would drop back to the BOJ’s goal of 2% within 2023.
Japanese policymakers maintained ultra-low interest rates at the BOJ’s January meeting, keeping the central bank’s refinancing rate at -0.10%. Preliminary GDP data for the final quarter of 2022 showed a minimal economic expansion of 0.2%. Japan’s poor economic outlook raises recession concerns for the world’s third-biggest economy.
The BOJ purchased 10-year government bonds last week to maintain the BOJ’s upper yield limit of 0.5%. The bond-buying strengthened the Yen early in the week, but the currency retreated later in the week.
Headline inflation in Japan has also gone above the BOJ’s 2% target, touching 40-year highs and putting pressure on businesses and households. Increased price pressures and wages, raise concerns of a wage-price spiral and may force the BOJ to pivot towards a more hawkish policy.
Volatility in Yen price is expected this week due to developments regarding the imminent change in BOJ leadership, especially after Ueda’s highly-anticipated testimony before the Diet on Monday. BOJ Core CPI data on the 28th and Tokyo Core CPI on March 3rd may provide information on price pressures in Japan and may cause some volatility in Yen price.
Gold extended losses last week, dropping to $1,810 per ounce, on higher Fed rate hike expectations. If gold prices increase, resistance may be encountered near $1,875 per ounce, while if gold prices decline, support may be found near $1,773 per ounce. Gold prices have been following a downtrend this month, pushed down by the rising dollar and strengthening US treasury yields.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. Gold prices dropped near a two-month low last week, weighed down by a stronger dollar and US yields combined with higher rate hike expectations. The dollar skyrocketed last week as US inflation data surprised to the upside and the dollar index touched the 105.3 level. US Treasury yields also rose on increased rate hike expectations, with the US 10-year bond yield climbing to 3.97%.
US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated, putting pressure on gold prices. Core PCE, which is the Fed’s primary inflation gauge, came in hotter than expected, rising by 0.6% in January against predictions of a 0.4% raise. The latest US PCE inflation data, combined with CPI and PPI data released earlier this month, indicated that the Fed has still a long way to go to rein in inflation.
The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Rate hikes have become less aggressive and may continue at their current pace, but the Fed might raise interest rates for longer than previously expected. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. Market expectations of the Fed peak interest rate continue to rise on hotter-than-expected US price pressures, pushing gold prices down. Increases in central banks’ interest rates put pressure on gold prices since assets yielding interest become a more appealing investment compared to gold as interest rates rise.
Minutes of the latest Fed meeting released last week was more hawkish than expected, boosting the US dollar and yields at the expense of gold prices. The minutes confirmed that FOMC members believe that there is still more work to be done to tackle inflation and a pause in the central bank’s tightening policy does not seem to be on the cards just yet.
Oil prices were volatile last week, with WTI price dropping below $73.7 per barrel mid-week before paring some of its losses and rallying to $76.7 per barrel on Friday. If the WTI price declines, it may encounter support near $72.9 per barrel, while resistance may be found near $80.6 per barrel.
Oil prices were under pressure last week, as the dollar gained strength and global economic growth concerns intensified. Recession concerns still run high and aggressive rate hikes stifle economic activity, limiting the oil demand outlook.
Minutes of the latest Fed meeting was more hawkish than expected, driving oil prices down. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%. US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated.
Oil prices rallied towards the end of the week on expectations that Russia will cut its oil exports more than previously announced. G7 leaders set a price cap on Russian oil exports on February 5th. Russia has announced plans to reduce oil output by 500,000 barrels per day as a retaliation for the price cap on the country's oil exports. Recent reports indicate that Russia may further cut oil production, boosting oil prices.
The oil demand outlook is increasing, boosting oil prices. OPEC+ upgraded its 2023 forecast based on expectations of China’s economic recovery. The organization released its updated projections for 2023, raising its demand forecast by 100,000 bpd, with most of the increased demand coming from China. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. The Chinese government has eased some of its strident Covid regulations, abandoning its zero-Covid policy, fuelling hopes of economic recovery.
Crypto markets were volatile last week, as risk sentiment fluctuated. Uncertainty is dominating crypto markets preventing cryptocurrencies from forming a clear trend.
Hawkish Fed minutes last week pointed to further rate hikes up ahead driving risk assets down as markets adjusted Fed rate hike expectations. The Fed might raise interest rates for longer than previously expected, putting pressure on crypto markets. The Federal Reserve raised interest rates by only 25 basis points at its February meeting, bringing the benchmark interest rate to a target range of 4.50% to 4.75%.
Prolonged rate hikes global fuel recession concerns, driving risk assets down. US inflation data last week showed that price pressures in the US remain high and are not easing at the pace anticipated, weighing cryptocurrency prices down. Market expectations of the Fed peak interest rate continue to rise on hotter-than-expected US price pressures, putting pressure on crypto markets. Current market odds lean towards further tightening in the upcoming Fed meetings and an increase in interest rates up to 5.25%.
Bitcoin price was volatile last week, dropping to $22,800 mid-week and then rallying towards the end of the week, trading near $23,500 during the weekend. If the BTC price declines, support can be found near $22,770, while resistance may be encountered near $25,000.
Ethereum price also fluctuated heavily last week, dropping to $1,560 during the week, then rising to the $1,640 level over the weekend. If Ethereum's price declines, it may encounter support near $1,600; if it increases, resistance may be near $1,725.
BTC/USD 1h Chart
ETH/USD 1h Chart
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