Important calendar events
The dollar surged last week, and the dollar index reached a five-month high, rising above the 106 level at the end of the week. US treasury yields also rose on diminishing Fed rate cut expectations, with the US 10-year bond yielding approximately 4.54% on Friday.
US inflation surprised on the upside last week boosting the dollar. US Headline inflation rose by 3.5% year-on-year in March exceeding February’s 3.2% print and rising above expectations of a 3.4% print. Monthly CPI rose by 0.4% in March, against expectations of 0.3% growth. Core CPI, which excludes food and energy, also rose by 0.4% against the 0.3% growth anticipated. Inflation in the US has proven to be sticky, resisting the Federal Reserve’s efforts to bring it down to 2%.
US PPI data on Thurver showed that producer prices in the US are easing, which will, in time, affect consumer prices as well. PPI rose by just 0.2% in March against expectations of 0.3% and 0.6% growth in February. Core PPI, which excludes food and energy, also rose by 0.2% in March, which was in line with expectations, but was lower than February’s 0.3% print.
The US Federal Reserve kept interest rates unchanged at its policy meeting in March, within a target range of 5.25% to 5.50%, as expected. The FOMC statement was optimistic about the state of the US economy and emphasized that disinflation is underway, although inflationary pressures remain high.
For months now, markets have been speculating on the timeline of the Fed’s pivot to a more dovish policy. Fed Chair Jerome Powell has stated that policymakers wish to see more evidence of disinflation before cutting interest rates. The Fed is carefully monitoring the progress of disinflation in the US, which is linked with the central bank’s monetary policy.
Market expectations of rate cuts dropped sharply after the release of the US inflation report last week. The timeline of the first-rate cut has shifted repeatedly in the past few months. At the beginning of the year, the first rate cut was priced in March, but after last week's inflation data markets are not anticipating a rate cut before July. More importantly, a few months ago markets were pricing in over 100 basis points of rate cuts in 2024 markets, which have now dropped to 50 basis points. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly. Diminishing rate cut expectations are boosting US treasury yields, providing support for the dollar.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.3% in February compared to January’s 0.4% growth, which was in line with expectations. On an annual basis, Core PCE dropped just below 2.8% in February, registering a marginal drop from January’s almost 2.9% print. Core PCE Price Index data showed that US disinflation is progressing, albeit slowly.
The US economy remains robust and expanded by 3.4% in the final quarter of 2023, exceeding previous estimates of 3.2% growth. The US economy is expanding at a slower pace, however, as GDP data have shown expansion by 4.9% in the third quarter of 2023.
Increased demand for safe-haven assets due to rising tensions in the Middle East boosted the dollar last week. The conflict between Israel and Iran is escalating and is expected to influence Forex markets this week. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground over the weekend. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict.
EUR/USD plummeted after the ECB policy meeting last week, closing near the 1.064 level on Friday. If the EUR/USD pair declines, it may find support at 1.045, while resistance may be encountered near 1.098.
The ECB left all policy settings unchanged at its monetary policy meeting on Thursday, as expected. The European Central Bank kept interest rates unchanged at 4.50% but hinted at a dovish shift in the future. In their statement after the meeting, policymakers stressed that if Euro area inflation remains on a path to achieve the central bank’s 2% target, it would be appropriate to reduce the current level of monetary policy restriction.
The EU central bank has revised its inflation projections down to an average of 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026. In addition, the ECB has revised down its growth projection for 2024 to 0.6%. Expectations of cooling inflationary pressures coupled with increased economic fragility, may induce the central bank to start cutting interest rates sooner than anticipated.
The ECB is expected to start cutting interest rates later this year since inflationary pressures in the Euro area are easing. ECB President Christine Lagarde’s press conference after the policy meeting was overall dovish. Lagarde stated that several policymakers were in favor of cutting interest rates on Thursday, but the majority of ECB members wanted to see more evidence of inflation dropping to the central bank’s 2% target. Lagarde reiterated her former position that they expect to have sufficient data in three months, pointing to a rate cut in June. Market odds of a rate cut in June rose after the ECB meeting, while most market analysts forecast around 75 basis points of cuts this year.
The Euro is under pressure by expectations that the ECB will start lowering interest rates by June. The Fed is not likely to start cutting interest rates before July, putting the Euro at a disadvantage against the dollar. In addition, markets are currently pricing in only 50 basis points of Fed rate cuts within 2024, compared to 75 bps of ECB rate cuts.
Headline inflation in the Euro area cooled to 2.4% in March from 2.6% in February against expectations of a 2.5% print. Core CPI, which excludes food and energy, dropped to 2.9% from 3.1% the previous month, versus 3.0% anticipated. Easing price pressures in the Eurozone may encourage the ECB to start lowering borrowing costs as early as June.
Flash GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero, as anticipated. The Eurozone economy does not show sufficient signs of recovery and is on the brink of recession. The EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.
GBP/USD dropped sharply last week, closing near 1.244 on Friday. If the GBP/USD rate goes up, it may encounter resistance near 1.289, while support may be found near 1.237.
The British economy slipped into recession last year, contracting by 0.3% in the final quarter of 2023. Monthly GDP data for February released last week, however, revealed that the British economy has narrowly avoided slipping into recession and has expanded by 0.1%. More importantly, January’s GDP was revised upwards to show an expansion of 0.3%. The British economy is fragile and may force the BOE to pivot to a more dovish policy.
The BOE maintained its official rate at 5.25% at its policy meeting in March but showed signs of preparing for a dovish pivot. BOE Governor Andrew Bailey’s statement after the meeting had dovish undertones, stating that cooling inflationary pressures in the UK support potential interest rate cuts and hinting at two or three rate cuts within the year.
Markets are pricing in the first BOE rate cut in June with approximately 40% probability, while a rate cut by August is considered almost certain. Rate cut expectations have become more moderate in the past months, with no more than 50 basis points of rate cuts expected this year.
The BOE has updated its inflation outlook, predicting that inflation will drop to the BOE’s 2% target in the second quarter of the year. If the BOE’s forecasts are realized, policymakers may be induced to cut interest rates sooner.
British headline inflation dropped to 3.4% year-on-year in February from 4.0% in January, surpassing expectations of a 3.5% print. Annual Core CPI, which excludes food and energy, fell to 4.5% in February from 5.1% in January, against 4.6% forecast.
USD/JPY skyrocketed to its highest level since June 1990 last week, closing near 153.3 on Friday. If the USD/JPY pair declines, it may find support near 150.8. If the pair climbs, it may find resistance near the psychological level of 154 and above that at a multi-decade high of 160.5.
Yen intervention concerns are high, as Japanese authorities have been warning repeatedly that an intervention to support the currency might be imminent. The Yen’s weakness is causing concern to Japanese officials who have been warning traders against speculative short selling of the Yen.
Finance Minister Shunichi Suzuki and other Japanese officials have been issuing warnings to currency speculators repeatedly in the past couple of weeks, hinting at another intervention to support the weakening Yen. Japan’s Prime Minister, Fumio Kishida, has also stressed that excessive volatility in the Yen is threatening the country’s financial stability. Kishida warned speculators that officials will take appropriate action if there are any further excessive forex moves.
Japan's top currency diplomat, Masato Kanda, warned that authorities would not rule out any measures to suppress speculative moves against the Yen. Japanese Finance Minister Shunichi Suzuki stated that authorities were investigating the factors that are driving the recent decline in the Yen and are ready to respond to sudden currency moves.
Japanese authorities have intervened to support the currency in the past and may do so again if the Yen continues to decline. Concerns about an imminent intervention have been keeping Yen short sellers in check, providing some support for the currency.
The BOJ pivoted to a more hawkish policy in March, ending its negative interest rate policy. The BOJ has been keeping interest rates at a negative level, putting pressure on the Yen. Japanese policymakers voted to raise the benchmark interest rate into the 0% - 0.1% range.
The BOJ abandoned its ultra-easy monetary policy after almost eight years and performed its first rate hike in almost 17 years. The BOJ also abandoned bond yield curve control and dropped purchases of riskier assets.
BOJ Governor Kazuo Ueda did not deliver clear forward guidance at his press conference after the meeting, stating that accommodative financial conditions will be maintained for the time being and did not give any hints of future rate hikes. In addition, Japanese policymakers are concerned about inflation not rising according to expectations. The BOJ’s 2% inflation target has not been met sustainably yet, which is likely to hinder policymakers from raising interest rates again soon.
Ueda, however, hinted on Tuesday that the BOJ may be considering raising interest rates again in the next few months. Ueda stated that if inflation continues to rise in Japan, the BOJ will consider cutting down stimulus, raising expectations of another rate hike within the year.
Even though the BOJ voted to raise interest rates, the Yen continues to weaken as there is still a significant disparity between interest rates offered by the BOJ and those from other major central banks.
On the data front, inflation in Japan remains low but is slowly rising. Tokyo Core CPI rose by 2.5% year-on-year in February from 1.6% in January. Headline inflation climbed to 2.8% year-on-year in February from 2.0% in January. BOJ Core CPI, on the other hand, retreated to 2.3% year-on-year in February from 2.6% in January against expectations of 2.5%.
Final GDP data for the final quarter of 2023 showed that Japan's economy expanded by 0.1% against expectations of 0.3% expansion. The Japanese economy contracted by 0.7% in the third quarter and expanded by 1.2% in the second quarter of 2023, showing that the country’s economy is shrinking. Recession concerns limit the odds of a BOJ hawkish pivot in the coming months.
Gold prices have been hitting new all-time highs in the past couple of weeks. Gold prices briefly touched a record high of $2,431 per ounce on Friday, defying the rivaling dollar’s rally, before paring some gains and retreating to $2,344 per ounce. If gold prices increase, resistance may be encountered at the psychological level of $2,500 per ounce, while if gold prices decline, support may be encountered near $2,270 per ounce.
Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Gold prices are propped up by rising geopolitical tensions, which raise the appeal of safe-haven assets. Concerns that the Geopolitical crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets, boosting gold prices. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground over the weekend. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict.
Gold prices have been predominantly directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar surged last week, and the dollar index rose above the 106 level at the end of the week. US treasury yields also rose on diminishing Fed rate cut expectations, with the US 10-year bond yielding approximately 4.54% on Friday. Gold prices remain at record highs, propped up by a strong safety bid, which counterbalances the dollar’s rally.
The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, boosting gold prices. For months now, markets have been speculating on the timeline of the Fed’s pivot to a more dovish policy. Fed officials wish to see more evidence of disinflation before cutting interest rates.
US inflation surprised on the upside on Wednesday, rising by 3.5% year-on-year in March exceeding February’s 3.2% print and rising above expectations of a lower print of 3.4. Inflation in the US has proven to be sticky, resisting the Federal Reserve’s efforts to bring it down to its 2% target. However, US PPI data on Thursday showed that producer prices in the US are easing, which will, in time, affect consumer prices as well.
Fed rate cut expectations are affecting gold prices. Market expectations of rate cuts dropped sharply after the release of the US inflation report last week. Rate cut expectations have shifted repeatedly in the past few months and after last week's inflation data markets are not anticipating a rate cut before July. More importantly, a few months ago markets were pricing in over 100 basis points of rate cuts in 2024 markets, which have now dropped to 50 basis points. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.
Rising geopolitical tensions propped up oil prices last week and WTI price ended the week near $85.5 per barrel. If WTI price declines, it may encounter support near $82.8 per barrel, while resistance may be found near $87.8 per barrel.
The US Energy Information Administration reported on Wednesday an unexpectedly large build in US oil inventories putting pressure on oil prices. US crude stockpiles rose by 5.8M barrels for the week to April 5th, exceeding expectations of a rise by just 0.9M barrels.
Geopolitical tensions are boosting oil prices. Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground over the weekend. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict, which might see oil prices rising even higher.
In addition, Ukrainian attacks on Russian energy infrastructure are propping up oil prices. Supply concerns are boosting oil prices on reports of the loss of Russian refinery capacity after the recent Ukrainian attacks.
OPEC+ kept existing output cuts in place at its latest meeting, boosting oil prices. OPEC kept its output policy steady in April, maintaining its voluntary production cuts of 2.2 million barrels per day. In addition, Russia may be forced to reduce its oil output even further, as a result of lower refinery runs due to Ukrainian drone strikes. Iraq will continue to reduce its crude exports by another 130K barrels per day to compensate for exceeding its OPEC+ quota in January.
China’s poor economic outlook is increasing concerns about reduced oil demand, putting a lid on oil prices, however, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down.
Oil prices are also kept in check by high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. Market expectations of rate cuts dropped sharply after the release of the US inflation report last week. Odds of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.
Bitcoin price plummeted last week, dropping as low as $61,000 over the weekend before paring some losses and regaining the $65,000 level. If the BTC price declines, support can be found near $60,000, while resistance may be encountered near $72,800.
Ethereum also posted heavy losses last week, struggling to maintain the key $3,000 level over the weekend. If Ethereum's price declines, it may encounter support near $2,800, while if it increases, resistance may be encountered near $3,800.
Bitcoin price recently reached a new all-time high of $73,800. Bitcoin’s bullish run has renewed interest in crypto markets, boosting other cryptocurrencies as well. Bitcoin has encountered significant selling pressure as well, however, causing increased volatility in the past weeks as bulls wrestle with bears.
Crypto markets have been under pressure in the past week by the escalation of hostilities between Israel and Iran. Fears that the war will spread in the Middle East are promoting a risk aversion sentiment putting pressure on risk assets such as cryptocurrencies. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground over the weekend. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict.
Bitcoin is gaining strength as the Bitcoin halving event is approaching. Every halving event cuts the rate at which new bitcoins are released into circulation in half, increasing the scarcity value of Bitcoin. The halving is scheduled approximately every four years, and the next Bitcoin halving event is expected on April 19th raising the value of the cryptocurrency.
The approval of Bitcoin spot exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) has caused cryptocurrency prices to surge over the past few months. The SEC has approved 11 applications boosting Bitcoin price. Spot Bitcoin ETF demand has been on the rise, boosting the cryptocurrency as well.
Cryptocurrency prices are also affected by central banks’ interest rates. High-interest rates are putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. The US Federal Reserve kept interest rates unchanged at its latest policy meeting in March, within a target range of 5.25% to 5.50%. Odds of rate cuts are becoming more moderate, boosting crypto markets, as policymakers have stated that they intend to start reducing interest rates slowly.
BTC/USD 1h Chart
ETH/USD 1h Chart
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Written by:
Myrsini Giannouli
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