Important calendar events
The dollar plummeted after the Fed policy meeting on Wednesday, with the dollar index dropping to the 103.4 level. US treasury yields also declined, with the US 10-year bond yielding approximately 4.27%.
The US Federal Reserve kept interest rates unchanged at its policy meeting on Wednesday, within a target range of 5.25% to 5.50%, as expected. In addition, policymakers made no adjustments to their ongoing quantitative tightening program, which was in line with expectations.
The FOMC statement was optimistic about the state of the US economy. The central bank raised its previous forecast for US economic growth this year predicting expansion by 2.1% in 2024 compared to its previous forecast of 1.4%. The FOMC statement also emphasized that disinflation is underway, although inflationary pressures remain high.
The Fed’s forward guidance was overall dovish, putting pressure on the dollar. For months now, markets have been speculating as to the timeline of the Fed’s pivot to a more dovish policy. Fed Chair Jerome Powell stated that inflation is higher than expected, forcing policymakers to proceed carefully with rate cuts.
Fed officials wish to see more evidence of disinflation before moving ahead with cutting interest rates. The Fed’s dot plot, however, which outlines policymakers’ expectations for the trajectory of interest rates over several years, showed that the Fed intends to proceed with cutting interest rates this year. The Fed’s dot plot in January predicted 3 rate cuts within the year of 25 basis points each. This projection has remained unchanged, raising expectations of a dovish pivot in the following months.
Odds of a rate cut in May are practically nil. Rate cut odds in June are approximately 60% and only 25 basis points of rate cuts are priced in by June. Market expectations of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.
On the data front, US inflation surprised on the upside last week, boosting the dollar. February’s inflation was hotter than anticipated and may set back the Fed’s plans to reduce interest rates. US Headline inflation rose by 3.2% year-on-year in February from a 3.1% print in January and against expectations of a steady print of 3.1%%. Monthly CPI rose by 0.4% in February, exceeding expectations of 0.3% growth. Core CPI, which excludes food and energy, also rose by 0.4% against the 0.3% raise anticipated.
PPI data also showed that price pressures in the US remain sticky and may derail the Fed’s plans of lowering interest rates. PPI rose by 0.6% in February against 0.3% anticipated and a 0.3% print in January. Core PPI, which excludes food and energy, also exceeded expectations, rising by 0.3% versus the 0.2% anticipated, registering a lower monthly growth than January’s 0.5%, though.
Core PCE Price Index, which is the Fed’s preferred inflation gauge, rose by 0.4% in January compared to December’s 0.2% growth. On an annual basis, Core PCE was at 2.8% in January, down from 2.9% in December. Core PCE Price Index data showed that US disinflation is progressing, albeit slowly.
Preliminary US GDP data showed that the US economy remains robust and expanded by 3.2% in the final quarter of 2023, missing, however, market forecasts of 3.3%. The US economy is expanding at a slower pace, as final GDP data have shown expansion by 4.9% in the third quarter of 2023, but economic growth in Q4 of 2023 exceeded expectations.
EUR/USD surged to the 1.093 level on Wednesday as the dollar weakened. If the EUR/USD pair declines, it may find support at 1.083, while resistance may be encountered near 1.096.
The ECB kept interest rates unchanged at 4.50% at its latest monetary policy meeting. 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 its growth projection for 2024 to 0.6%. Expectations of cooling inflationary pressures coupled with increased economic fragility, may induce the central bank to start cutting interest rates sooner than anticipated.
ECB President Christine Lagarde has stated that the ECB wants to see more evidence of inflation dropping to the central bank’s 2% target. Lagarde said that policymakers expect to have sufficient data in three months, pointing to a rate cut in June, while most market analysts forecast around 90 basis points of cuts this year.
ECB President Christine Lagarde hinted on Wednesday that the central bank could start cutting interest rates in June this year. Lagarde stated that the EU inflation path seen in March was optimistic and reiterated that June’s projections might confirm that disinflation in the Eurozone is well underway.
Economic sentiment in the Eurozone is improving, according to data released on Tuesday. The ZEW Economic Sentiment survey gave a reading of 33.5 in March against expectations of 25.4 and a print of 25.0 in February. A value above zero denotes optimism, with March’s report showing increased economic confidence. Economic Sentiment was especially improved in Germany, which is the Euro area’s leading economy. German ZEW Economic Sentiment rose to 31.7, its highest value in over two years, beating market estimates of 20.5.
Final CPI data released on Monday confirmed preliminary data that showed that Eurozone inflation cooled in February. Headline inflation in the EU dropped to 2.6% year-on-year in February from 2.8% in January. Euro area inflation, however, missed expectations of a greater drop to 2.5% in February. Core inflation, which excludes food and energy, has dropped to its lowest level in two years. Core inflation cooled to 3.1% in February from 3.3% in January, but also disappointed expectations of a drop to 2.9%.
Flash GDP data for Q4 of 2023 showed that the Euro area economy was stagnant with a GDP print of zero, as anticipated. The Eurozone economy does not show sufficient signs of recovery and is on the brink of recession. EU economy contracted by 0.1% in the third quarter of 2023 and barely expanded in the second quarter by 0.1%, after contracting by 0.1% in Q1.
The Sterling benefitted from the rivaling dollar’s weakness on Wednesday and GBP/USD skyrocketed to 1.280. If the GBP/USD rate goes up, it may encounter resistance near 1.282, while support may be found near 1.260.
The BOE will announce its interest rate decision on the 21st, a day after the Fed meeting. The BOE maintained its official rate at 5.25% at its latest meeting and updated its inflation outlook, predicting that inflation will drop to the BOE’s 2% target in the second quarter of the year. The BOE is expected to keep interest rates steady on Thursday and markets will focus mostly on the central bank’s forward guidance.
Markets are pricing in the first BOE rate cut in June with approximately 50% probability, while a rate cut in August is considered almost certain. Rate cut expectations have become more moderate in the past months, with no more than 70 basis points of rate cuts priced in within the year.
British inflation data released on Wednesday showed that headline inflation in the UK dropped sharply in February. 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.
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 Finance Minister Jeremy Hunt stated that cooling inflationary pressures would open the door for a monetary easing.
GDP data have shown that the British economy expanded by 0.2% in January against a 0.1% contraction in December. In addition, the British economy contracted by 0.1% in the three months to January 2024. The country’s economy returned to growth in January, raising hopes that the UK may avoid slipping into recession. The British economy remains fragile, however, and may force the BOE to pivot to a more dovish policy.
USD/JPY rose to the 151.8 level after the Fed rate meeting on Wednesday, but pared the day’s gains later, retreating to 150.6. If the USD/JPY pair declines, it may find support near 146.5. If the pair climbs, it may find resistance near 151.9.
On Tuesday, the BOJ pivoted to a more hawkish policy, 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 on Tuesday. 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. Japanese bond yields declined after the announcement, putting pressure on the Yen.
Markets were pricing in only a 44% chance of a rate hike before the meeting, with higher expectations of ending negative interest rates at the bank’s next meeting in April. Even though the central bank’s move had not been fully priced in and came as a surprise, the Yen went into freefall after the policy meeting.
BOJ Governor Kazuo Ueda did not deliver clear forward guidance at his press conference after the meeting, putting pressure on the Yen. Ueda stated that accommodative financial conditions will be maintained for the time being and did not give any hints of future rate hikes.
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. BOJ Core CPI remained at 2.6% year-on-year in January against expectations of 2.3% print. In addition, headline inflation rose by just 2.0% year-on-year in January from 2.3% in December.
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.
The content provided in this material and/or any other material that this content is referred to, whether it comes from a third party or not, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy and cannot guarantee any profits. Past performance does not constitute a reliable indicator of future results. TopFX does not represent that the material provided here is accurate, current, or complete and therefore shouldn't be relied upon as such. This material does not take into account the reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of TopFX, no reproduction or redistribution of the information provided herein is permitted.
Written by:
Myrsini Giannouli
присутствие в отрасли
в качестве провайдера ликвидности
и надежное исполнение
клиентские средства
служба поддержки
Сайт, который вы сейчас просматриваете, управляется TopFX Global Ltd, организацией, которая регулируется Управлением по финансовым услугам (FSA) Сейшельских островов с лицензией дилера ценных бумаг № SD037, которая не создана в Европейском Союзе и не регулируется национальным компетентным органом ЕС.
Если вы хотите продолжить, пожалуйста, подтвердите, что вы понимаете и принимаете риски, связанные с торговлей с организацией, не входящей в ЕС (как эти риски описаны в Собственном Форма подтверждения инициативы aи что ваше решение будет принято исключительно по вашей инициативе, и что TopFX Global Ltd или любая другая компания, входящая в Группу, не призывает вас к этому.
Больше не показывать это сообщение
На сайте TopFX используются файлы cookie для улучшения условий работы пользователей.
Это файлы cookie трех видов: необходимые, функциональные и маркетинговые. Маркетинговые файлы cookie могут быть и файлами третьих лиц.
Вы можете выбрать файлы cookie, которые согласны принять.
Эти файлы cookie необходимы для нормального функционирования сайта, и их отключение невозможно.
Функциональные файлы cookie позволяют сайту запоминать предпочтения пользователей и что они выбирают на сайте, например, имя пользователя, регион и язык.
Эти файлы cookie позволяют узнавать, какие сайты просматривают пользователи, и показывать им более актуальную рекламу. Маркетинговые файлы cookie могут быть и файлами третьих лиц – наших партнеров. Для получения дополнительной информации о сборе и защите данных ознакомьтесь с нашей Политикой конфиденциальности и Уведомлением о файлах cookie.