Daily Market Analysis By Z Forex

[Z Forex]

Global Financial Update: Dollar Stability, Inflation Trends, and Central Bank Moves Shape Market Outlook

The dollar remained stable on Friday, following reports that US inflation continues to persist, although at a gradually decreasing rate. This situation fuels optimism that the Federal Reserve may commence interest rate reductions in June. In contrast, the yen weakened, returning to the significant level of 150 against the dollar. Recent robust US economic indicators and persistent inflation have prompted traders to adjust their expectations for the Federal Reserve's easing cycle commencement in June. Upcoming payroll data will be crucial for assessing the state of the US labor market.
In Europe, inflation data from Germany, France, and Spain indicated a slowdown, hinting that the euro zone's inflation rate for February might decrease to approximately 2.5% from January's 2.8%, edging closer to the European Central Bank's (ECB) target of 2%. It is anticipated that the ECB will continue its policy normalization efforts. Despite expectations that ECB President Christine Lagarde will dismiss any rate cuts in the March meeting, financial markets speculate that reductions could begin as early as June. Focus is now shifting towards the ECB's upcoming interest rate decision.
In the UK, Bank of England (BoE) Deputy Governor Dave Ramsden expressed a desire to monitor inflation's persistence before altering the monetary policy stance. Despite market anticipations of imminent interest rate cuts, BoE officials have resisted, thereby supporting the Pound Sterling. The upcoming final UK Manufacturing PMI and a speech by BoE Chief Economist Huw Pill are expected for further direction.
Bank of Japan (BoJ) Governor Kazuo Ueda remarked that the 2% inflation target remains unmet, amid Japan's unexpected recession and speculation around the timing of the next rate hike, which has been delayed since 2007. Additionally, a recent surge in global equity markets has diminished the appeal of the safe-haven Japanese yen (JPY).
Gold prices remained above $2,040 an ounce, heading for a second consecutive weekly gain, as the latest U.S. inflation data met expectations, maintaining the likelihood of Federal Reserve rate cuts within the year. Market odds favor a two-thirds probability of a rate cut by the Fed in June, with no changes anticipated for March and May.
Oil prices saw a slight increase on Friday, poised for a modest weekly gain, as the market awaits OPEC+'s supply decision for the second quarter, amidst mixed demand signals from major consumers, the U.S. and China.
Cryptocurrency experienced a significant surge, with a 45% increase in February, marking its largest monthly gain in over three years. This boost was driven by the influx of investments into newly approved and launched exchange-traded funds (ETFs) in the United States.

 

[Z Forex]

Global Economic Outlook: Fed Chair Testimony, Central Bank Rates, and Market Movements Awaited

The dollar index remained subtle, staying below 104 on Tuesday, amid anticipation of upcoming US economic data and Federal Reserve commentary, which are expected to provide clearer direction on interest rate trends. This week's focus includes the release of US services activity and factory orders data later on Tuesday, as well as the critical monthly jobs report scheduled for Friday. Additionally, Fed Chair Jerome Powell is set to testify before the US Congress on Wednesday and Thursday, offering further insights.
In the UK, the economic calendar appears light this week. Expectations are set for the UK BRC Like-For-Like Retail Sales for the year ending in February to show a 1.6% year-on-year increase, compared to the previously reported 1.4%.
The European Central Bank (ECB) is anticipated to maintain the main refinancing rate at 4.5% during its March meeting on Thursday. ECB President Christine Lagarde highlighted last week that while disinflation is expected to continue, the bank requires more data before considering an interest rate reduction. The upcoming press conference will be closely watched for further guidance, with a potential less hawkish tone possibly leading to selling pressure on the Euro.
In Japan, data from the Statistics Bureau revealed that the Tokyo Consumer Price Index (CPI) rose to 2.6% year-on-year in February, up from 1.6% in January. Furthermore, the CPI excluding fresh food and energy softened to 3.1% year-on-year in January, from a previous 3.3%. This acceleration in price growth beyond the central bank's target supports the possibility of the Bank of Japan's (BoJ) first interest rate hike since 2007, potentially strengthening the Japanese Yen against its competitors. BoJ board member Hajime Takata hinted at a possible shift away from negative interest rates, citing that the price target is now achievable and a policy adjustment may be warranted. However, BoJ Governor Kazuo Ueda expressed a more cautious stance, indicating the need for further data to confirm the emergence of a positive wage-price cycle. Upcoming HCOB PMI data from Spain, Italy, France, Germany, and the Eurozone is also awaited.
Gold prices remained near a three-month high on Tuesday, bolstered by weaker US manufacturing and construction spending data, as market participants await Fed Chair Jerome Powell's testimony and key employment figures later in the week. Recent data showed a continued decline in US manufacturing activity in February, a gradual easing of inflation, and persistently weak consumer sentiment.
West Texas Intermediate (WTI) crude futures experienced a decline on Tuesday, marking the second consecutive session of losses. Concerns over sustained demand overshadowed the impact of extended supply cuts by OPEC and its allies, with global oil demand growth potentially challenging OPEC+'s production strategy.

 

[Z Forex]

Global Financial Update: Fed's Policy Shift, Economic Forecasts, and Commodity Market Movements

The dollar index marked its lowest point in a month. This follows comments from Federal Reserve Chair Jerome Powell indicating a potential easing of restrictive monetary policy later in the year. Meanwhile, ADP's employment data for February showed weaker than expected growth in US private sector jobs, and the JOLTS report indicated job openings slightly below projections.
Attention is now focused on Powell's upcoming Senate testimony, alongside forthcoming data on unemployment claims, the trade balance, and consumer credit. The European Central Bank (ECB) is expected to hold the Deposit Facility Rate steady at 4.0% for the fourth consecutive session. During its meeting, the ECB will also provide updated economic forecasts, with ECB President Christine Lagarde's comments post-meeting anticipated for insights into future monetary policy and economic projections.
Eurozone retail sales data for January suggested a less severe contraction than expected, with a reported annual decline of 1%, against the forecasted 1.3% drop. This followed a 0.5% decrease in December, with a modest month over month improvement of 0.1%, aligning with predictions after a previous 0.6% fall.
In the UK, Chancellor Jeremy Hunt unveiled the spring budget, highlighting the nation's resilience through financial and energy crises and the ongoing war in Europe. Despite these challenges, Hunt projected economic growth of 0.8% in 2024 and 1.9% in 2025, surpassing previous estimates and suggesting prolonged high interest rates to combat inflation, which strengthened the Pound Sterling.
In Japan, Bank of Japan (BoJ) official Junko Nakagawa remarked on the improving likelihood of achieving a 2% inflation target, emphasizing cautious policy decisions amidst uncertainty. BoJ Governor Kazuo Ueda also supported the possibility of exiting stimulus measures while pursuing the inflation goal, bolstering the Japanese Yen.
Gold prices surged above $2,150 an ounce, reaching record highs as the dollar and Treasury yields dipped amid anticipation of the Federal Reserve reducing interest rates soon due to economic concerns.
WTI crude futures remained above $79 per barrel, building on a more than 1% increase from the previous session, as a recent EIA report revealed a smaller-than-anticipated rise in US crude inventories, suggesting a less significant build of 1.367 million barrels against the 2.116 million barrel forecast.

 

[Z Forex]

Fed Rate Cut Expectations and Global Economic Indicators Influence Financial Markets

The dollar index has consistently stayed below 103, extending its stay at low levels for over seven weeks, and is poised for a 1% loss this week. This decline is fueled by market sentiments anticipating a potential shift in the Fed's stance towards interest rate cuts later this year. Fed Chair Powell, in his Senate testimony, indicated that the central bank is close to having sufficient confidence that inflation is nearing the 2% target, potentially initiating an easing cycle. This comes after previous statements suggested a likelihood of rate decreases in 2023 if the slowdown in inflation persists. Market participants are now awaiting the February jobs report, expecting additional insights into the labor market's state.
In the Eurozone, the GDP is expected to show no change, maintaining a 0.1% annual growth and a 0.0% monthly rate for the fourth quarter of 2023. Meanwhile, in the US, forecasts suggest Nonfarm Payrolls might add 200K jobs in February, a decrease from the previous 353K, possibly reinforcing expectations for a Federal Reserve rate cut by June. The European Central Bank (ECB) recently decided to keep its monetary policy unchanged, reiterating its dedication to guiding inflation towards its target, leaving key interest rates steady. This announcement underscores the ECB's readiness to maintain restrictive measures as needed to meet its inflation goal.
Market speculation also hints at the possibility of the Bank of England (BoE) following the Fed's lead by lowering interest rates, a move that could strengthen the Pound Sterling. However, BoE policymakers are awaiting further inflation evidence before deciding.
The Bank of Japan (BoJ) conveyed optimism regarding achieving the 2% inflation target, hinting at ending negative interest rates for the first time since 2007. This stance has elevated the Japanese Yen to a one-month high against the dollar.
Gold prices neared all-time highs, reaching around $2,160 an ounce, propelled by a more than 3% weekly increase as the dollar and Treasury yields fell amidst anticipations of Federal Reserve rate cuts.
WTI crude futures climbed above $79 per barrel, recovering from earlier losses amid escalating Middle East tensions, notably following a Houthi attack on a commercial vessel in the Red Sea, which resulted in casualties. In the US, crude stockpile data showed less increase than expected, while speculations of a ceasefire agreement between Israel and Hamas during Ramadan could impact oil prices.

 

[Z Forex]

Global Financial Markets Respond to Central Bank Moves with Inflation and Policy Shifts

On Tuesday, the dollar index remained steady reaching its highest position in nearly two weeks. This stability is attributed to investors reevaluating their expectations for early interest rate cuts by the Federal Reserve, influenced by strong US inflation figures. The Federal Reserve is expected to maintain current interest rates this week, with market attention turning to indications of the timing and magnitude of a potential easing cycle later in the year.
At its March meeting, the European Central Bank (ECB) kept interest rates unchanged, with officials signaling improvements in inflation control and initiating discussions on the timeline for rate reductions. ECB member Pablo Hernandez de Cos mentioned the possibility of starting to reduce interest rates in June, contingent on a continued decline in Eurozone inflation. Fellow Governing Council member Klaas Knot also targeted June for an initial rate cut, forecasting a total of three reductions within the year.
Market focus is also set on the upcoming German and Eurozone ZEW Survey, expected later on Tuesday. In the United Kingdom, signs of moderating inflation are emerging, though the Bank of England (BoE) remains cautious, awaiting inflation's return to the 2% target before altering rates. It is anticipated that the BoE will maintain its interest rate at 5.25% in Thursday's meeting, with investors keenly awaiting the release of consumer and producer price data on Wednesday.
Recent Consumer Inflation Expectations in the UK, showing a slight decrease from 3.3% to 3.0%, sparked speculation about a potential BoE rate cut, with predictions pointing towards August for the commencement of rate reductions.
In Japan, the yen experienced a significant drop following the Bank of Japan's (BoJ) decision to conclude its negative interest rate policy, marking an end to eight years of this approach and signaling a departure from prolonged monetary stimulus measures.
Gold prices hovered around $2,160 on Tuesday, as investors hesitated to make substantial moves ahead of the Federal Reserve's policy decision. Despite expectations for the Fed to keep interest rates unchanged, recent strong inflation data has led traders to reconsider bets on a rate cut in June.
Lastly, recent Ukrainian drone attacks on Russian oil refineries have the potential to increase Russia's crude oil exports. This development has encouraged bullish traders to secure profits after a significant rally in oil prices, cautioning against short-term market overextensions.

 

[Z Forex]

Global Central Banks Signal Rate Cuts, Dollar Weakens as Gold and Oil Rise

The dollar index experienced a decline, approaching 103 on Thursday, which marked a continuation of its downward trajectory from the prior session, reaching lows not seen in a week. This movement was influenced by the Federal Reserve's decision to maintain its forecast for three interest rate cuts within the year, despite leaving rates unchanged in March, a move that met widespread expectations. The central bank also adjusted its outlook slightly, indicating one fewer cut in 2025. Chairman Powell, during a regular press conference, emphasized that inflation data from January and February did not change the overall narrative surrounding inflation. He restated the need for policymakers to gain more confidence that inflation is consistently moving towards a 2% target before making any future policy adjustments, which will be guided by economic data.
In Europe, Christine Lagarde, the President of the European Central Bank (ECB), highlighted on Wednesday that the decision to cut interest rates would be deliberated in the June meeting. This consideration will be based on data available by June, which is expected to provide clearer insights into inflation trends and the state of the labor market. The anticipation in the money markets is for the ECB to implement three rate cuts by the end of the year, with a potential fourth cut being speculated, according to reports by Reuters.
Key economic indicators to be released include the HCOB Purchasing Managers Index (PMI) for Germany and the Eurozone on Thursday, along with the German Buba Monthly Report. Meanwhile, the Bank of England (BoE) is anticipated to maintain its policy rate for the fifth consecutive meeting on Thursday. This comes amid increasing speculation about potential interest rate cuts, with recent data suggesting a hastening in the pace of disinflation in the UK in February, which could lead to an earlier start to interest rate reductions.
Inflation metrics in the UK indicated that the Consumer Price Index (CPI) rose by 3.4% year-over-year in February, with the Core CPI (excluding food and energy costs) increasing by 4.5%. The Bank of Japan (BoJ) earlier this week signaled its intention to keep financial conditions accommodative, without providing specific guidance on future policy directions or normalization pace. This stance, combined with a general risk-on sentiment, contributed to a decline in demand for the traditionally safe-haven Japanese Yen.
Gold prices reached new highs following the Fed's reaffirmation of its interest rate cut outlook for the year, with the metal's appeal inversely related to interest rates. Gold's value surged past the $2,200 mark as bond yields decreased. Additionally, oil prices rebounded on Thursday, supported by a notable drawdown in US crude and gasoline stocks, despite indicators that the Federal Reserve might maintain higher interest rates for an extended period. Inventory levels unexpectedly fell by 2 million barrels to 445 million barrels for the week ending March 15, contrary to analysts' expectations of a 13,000-barrel increase, based on a Reuters poll.

 

[Z Forex]

Global Financial and Economic Insights: Interest Rates, Market Movements, and Geopolitical Developments​

The dollar index saw a slight decline, retracting some of its gains from the previous week as investors adopted a cautious stance in anticipation of the US PCE price index report for February, set to be released later this week. This report is crucial as it serves as the Federal Reserve's preferred measure of inflation. Despite this slight retreat, the index hovered near five-week highs, fueled by expectations that US interest rates might remain elevated for an extended period. This sentiment is in contrast to other major economies that are beginning to reduce rates, making the dollar a more attractive option for traders seeking both stability and higher returns.

In Europe, Edward Scicluna, a member of the European Central Bank (ECB) Governing Council, suggested that an interest rate cut by the ECB could be justified as early as April, a move that he believes should not be dismissed. Adding to this, Joachim Nagel, President of the Bundesbank, indicated the possibility of an ECB rate cut before summer, potentially in June, as inflation trends towards the 2% target. Financial markets are currently pricing in up to 89 basis points of rate reductions, equating to three or possibly four adjustments of 25 basis points each, with the initial cut expected in June or July.

In the UK, recent data from the Office for National Statistics showed that Retail Sales in February were unexpectedly strong, remaining steady against forecasts of a 0.3% decrease. This positive outcome, suggesting resilience in the economy, comes after the UK entered a technical recession in the latter half of the previous year. Upcoming UK GDP growth figures for the fourth quarter are eagerly awaited, with projections indicating a contraction of 0.3% quarter-over-quarter and 0.2% year-over-year. Such data, if exceeded expectations, could support the British Pound.

The Japanese Yen may find support from potential interventions in the forex market. Masato Kanda, Japan's chief currency diplomat, has not discounted any measures to combat the excessive weakening of the yen, emphasizing the country's readiness to act if necessary. Additionally, discussions in the Bank of Japan's January policy meeting minutes revealed a growing consensus about achieving the central bank's inflation target gradually, alongside contemplation of further measures should a positive wage and inflation cycle be confirmed. Concerns over inflation surpassing expectations have notably lessened among some policymakers.

Gold prices experienced a slight increase on Monday, driven by renewed speculation that the US Federal Reserve might start reducing interest rates by June, coupled with a weakening dollar, which enhanced the appeal of gold.

West Texas Intermediate (WTI) crude futures surpassed $81, recovering some of the previous week's losses amid ongoing supply disruptions. These disruptions, including impacts on Russian oil refinery operations due to Ukrainian drone attacks affecting around 12% of Russia's processing capacity, have continued to destabilize oil markets.

Lastly, the UN Security Council's inability to adopt a resolution calling for an immediate ceasefire in Gaza underscores geopolitical tensions. The proposed measure, vetoed by Russia and China, failed to pass on Friday, highlighting the complex dynamics at play within the council.

 

[Z Forex]

Central Banks' Interest Rate Paths and Market Implications Amidst Mixed Signals

Against a backdrop of optimism for US economic growth, the USD Index (DXY) faces difficulty attracting buyers amidst mixed signals concerning the Federal Reserve's (Fed) stance on interest rate cuts. Despite the Fed's announcement last week of its plan to reduce interest rates by 75 basis points (bps) this year, concerns about persistent inflation and stronger-than-expected US macroeconomic data have been raised by several Fed officials. Attention is particularly focused on the upcoming release of the US Personal Consumption and Expenditure (PCE) Price Index, the Fed's preferred inflation measure, set for Friday. Investors are also anticipating other key economic reports, including Durable Goods Orders, the Conference Board's Consumer Confidence Index, and the Richmond Manufacturing Index.
In Europe, Bank of Italy Governor Fabio Panetta indicated that the European Central Bank (ECB) is poised to cut interest rates as inflation trends towards the 2% target. ECB Chief Economist Philip Lane also mentioned the possibility of interest rate reversals, pending a slowdown in wage growth and a return to the 2% inflation target. Meanwhile, the Bank of England (BoE) Governor Andrew Bailey signaled that interest rate reductions this year are a reasonable expectation, following a shift in stance by two BoE policymakers towards maintaining the current borrowing cost at 5.25%, which may impact the British Pound (GBP).
The Japanese Yen (JPY) has seen a slight increase, supported by speculation of market intervention by Japanese authorities and ongoing geopolitical risks in Eastern Europe and the Middle East, enhancing its safe-haven appeal. However, gains are limited due to uncertainties surrounding the Bank of Japan's (BoJ) policy direction and the general bullish sentiment in equity markets, which could restrain the JPY's advance. Conversely, the USD faces downward pressure due to the Fed's anticipated shift towards a less restrictive monetary policy.
In commodities, gold prices have stabilized, with investors awaiting the US PCE price index report for further direction. Oil prices remained stable after a previous session increase, with the market adopting a mixed perspective on the impact of lost Russian refinery capacity due to Ukrainian attacks, though a slightly weaker USD provided some support.

 

[Z Forex]

Dollar Index Surges Ahead of Crucial Inflation Report, ECB and BoE Policies in Focus

The Dollar Index experienced an uptick, reaching approximately 104.6 on Friday, positioning itself near a six-week peak. This movement comes as investors eagerly await a crucial US inflation report, anticipated to shape the future direction of interest rates. However, it is expected that trading volumes will be subdued due to the US markets closing for the Good Friday holiday.
Attention is drawn to the forthcoming PCE price index report, the Federal Reserve's preferred measure of inflation, to discern whether the trend of surging inflation figures will persist. Federal Reserve Governor Christopher Waller earlier remarked that the central bank might pause rate reductions in light of robust inflationary pressures.
In Europe, ECB official Villeroy observed a significant drop in core inflation, maintaining optimism in achieving the ECB's 2% inflation goal. However, he warned of the growing risks of delaying rate cuts. Fabio Panetta, another ECB executive board member, underscored the emerging conditions favorable for monetary policy easing, noting the dampening effect of restrictive policies on demand and the consequent sharp decline in inflation. He also mentioned a diminished threat to price stability.
From the Bank of England, Jonathan Haskel adopted a hawkish stance, suggesting that rate cuts should be considerably deferred. Catherine Mann echoed this sentiment, advising against high expectations for interest rate reductions within the year. Despite this, the British Pound faced pressure due to data indicating the UK's economy slipped into a recession in the latter half of 2023, with a 0.3% contraction in GDP for Q4, aligning with initial estimates. Speculation continues around the Bank of England possibly implementing three quarter-point rate cuts through 2024, with Governor Andrew Bailey indicating such decisions will be explored in upcoming policy meetings.
The Bank of Japan's cautious approach to maintaining accommodating monetary conditions has placed downward pressure on the Japanese Yen. Recent statistics show Tokyo's Consumer Price Index rising by 2.6% YoY in March, mirroring the increase in February. Excluding fresh food and energy, the CPI saw a 2.9% YoY rise, a slight decrease from February's 3.1% increase. Prime Minister Fumio Kishida affirmed the central bank's current monetary stance and committed to collaboration between the government and the Bank of Japan to foster wage growth and combat deflation.
However, potential interventions by Japanese authorities may limit the Yen's depreciation. Finance Minister Shunichi Suzuki expressed readiness to address any erratic foreign exchange movements with urgency.
In commodities, gold prices remained robust, exceeding $2,230 an ounce amid speculation of imminent rate cuts by major central banks and increased safe-haven demand due to geopolitical tensions.
Crude oil futures also saw a rise, with WTI crude increasing by 2.24% on Thursday, marking a third consecutive month of gains. This uptrend is supported by OPEC+'s supply management efforts and ongoing geopolitical unrest in Eastern Europe and the Middle East. Notably, Ukrainian drone attacks on Russian refineries have impacted a significant portion of Russia's oil processing capability, further influencing oil prices.

 

[Z Forex]

Global Economic Update: Inflation Data Spurs Rate Cut Speculations Amid Mixed Market Reactions

In March, the US Producer Price Index (PPI) rose by a modest 0.2% month-over-month, falling short of the anticipated 0.3% increase. This resulted in a 2.1% year-over-year increase, marking the largest gain since April 2023. Furthermore, the Core PPI, which excludes food and energy, climbed 2.4% year-over-year, surpassing market forecasts. These figures, reported by the Bureau of Labor Statistics on Thursday, fueled optimism for potential rate cuts by the Federal Reserve (Fed) within the year.
Despite this, the financial markets have tempered their expectations, now pricing in only two rate cuts, likely starting in September. This cautious stance was reinforced by the Federal Open Market Committee (FOMC) minutes, which highlighted ongoing uncertainties about persistent high inflation and a lack of confidence in inflation stabilizing sustainably at 2%.
On the same day, the European Central Bank (ECB) maintained its key interest rates at 4.0% for the fifth consecutive meeting, while subtly indicating the possibility of a rate cut, potentially preceding the Fed's adjustments. Market speculation has led to expectations of a 25 basis point reduction by the ECB as early as June, placing downward pressure on the Euro.
In the UK, recent data from the Office for National Statistics revealed a slight 0.1% month-over-month growth in Gross Domestic Product (GDP) for February, aligning with estimates but showing a deceleration from the previous 0.3% expansion. Additionally, February's Industrial Production exceeded expectations with a 1.1% increase, rebounding from a 0.3% decline in January. The UK Goods Trade Balance also improved, registering a deficit of GBP -14.212 billion against a forecasted GBP -14.5 billion. Despite these positive indicators, the Pound Sterling remained subdued as markets anticipate an imminent rate cut by the Bank of England (BoE), potentially ahead of the Fed.
The Japanese Yen weakened to a new multi-decade low against the US dollar, influenced by the Bank of Japan's (BoJ) dovish stance and lack of clear future policy direction. This contrasts with the Fed's expected delay in rate cuts due to persistent inflation, suggesting a continued disparity in interest rates between the US and Japan, which undermines the Yen's appeal as a safe-haven currency.
In commodities, gold prices soared past the $2,400 mark, setting a record for the 17th time, driven by ongoing geopolitical tensions and the anticipation of US rate cuts. Meanwhile, crude oil prices experienced an uptick amid escalating tensions in the Middle East, though they were on track for a weekly loss, reflecting broader economic concerns.

 

[Z Forex]

Global Financial Update: Dollar Strengthens, ECB and BoE Rate Cut Speculations, and Geopolitical Tensions Impact Markets

On Tuesday, the US dollar index continued its upward trajectory, following a surge on Monday triggered by a strong US retail sales report. In March, retail sales, which reflect consumer spending, increased by 0.7% from February, surpassing expectations. This strong consumer activity contradicts earlier predictions of a spending pullback, prompting further speculation about the timing of potential Federal Reserve interest rate cuts. This speculation has been fueled by strong employment gains in March and rising consumer inflation.
In contrast, the European Central Bank (ECB) views market expectations for a rate decrease starting in June as reasonable, following a steady decline in the annual core Consumer Price Index (CPI), which excludes volatile food and energy prices, to 2.9% in March. This marks the eighth consecutive month of declines, suggesting that inflation is on a sustainable path towards the ECB's 2% target. Last week, the ECB maintained its Main Refinancing Operations Rate at 4.5%. ECB President Christine Lagarde indicated that if upcoming assessments provide more confidence that inflation is returning to the target, rate cuts would be justified.
In the UK, the Pound Sterling is under pressure due to disappointing labor market data for the quarter ending in February, which reflected a deteriorating economic outlook. The UK's Office for National Statistics (ONS) reported that the unemployment rate increased unexpectedly to 4.2% from the anticipated 4.0% and previous 3.9%. Additionally, layoffs in February rose to 156,000 up from 89,000 in January. Market attention is now turning to the upcoming release of the UK Consumer Price Index (CPI) for March, which could significantly influence expectations for future Bank of England (BoE) rate adjustments, currently projected to begin in August.
The Japanese Yen weakened further on Tuesday, hitting a new 34-year low against the US dollar. This follows the Bank of Japan's (BoJ) decision to maintain a dovish stance, refraining from providing clear guidance on future policy directions or the pace of policy normalization after the cessation of negative interest rates in March. A recent report suggests a shift in the BoJ's focus from inflation targeting to a more discretionary approach, which will consider various economic indicators to guide future rate decisions, contributing to the yen's depreciation.
Gold prices hovered near record highs on Tuesday, strengthened by a prediction from a major Wall Street bank that the precious metal could reach $3,000 per ounce within the next six to 18 months.
Oil prices climbed on Tuesday, supported by faster-than-expected economic growth in China and heightened geopolitical tensions in the Middle East following a missile and drone attack by Iran on Israel over the weekend.

 

[Z Forex]

Fed Talk Strengthens Dollar as ECB, BoE Face Different Paths

Recent comments from Federal Reserve officials have bolstered the US Dollar (USD). The US Department of Labor reported that new claims for unemployment benefits for the week ending April 13 rose by 212K, consistent with the previous week's revised count (up from 211K) and below the market consensus of 215K. This suggests that the labor market remains resilient, leading investors to anticipate a possible delay in Federal Reserve interest rate cuts until September.
Fed Chair Jerome Powell emphasized on Tuesday the need for a restrictive monetary policy to continue longer than anticipated, as inflation rates in the first quarter exceeded expectations. Atlanta Fed President Raphael Bostic commented on Thursday that he expects inflation to slowly return to the 2% target, and he is comfortable waiting, predicting potential rate cuts by the end of the year. Meanwhile, New York Fed President John Williams sees no urgent need to cut rates, asserting that the current monetary policy is effective. This narrative of maintaining higher rates for a longer period has continued to support the strength of the US Dollar.
In contrast, the European Central Bank (ECB) already hinted at possible interest rate cuts in June. ECB Vice-President Luis de Guindos expressed his willingness to ease monetary policy if the data meets expectations, and ECB policymaker François Villeroy de Galhau spoke out in favor of a rate cut in June to forestall a backlog in inflation control. ECB policymaker Joachim Nagel also conceded that an interest rate cut in June is becoming increasingly likely despite the persistently high inflation figures. This speculation has put downward pressure on the Euro (EUR).
The Pound Sterling (GBP) is currently finding temporary support at 1.2400, although the short-term outlook is clouded by risk-averse market sentiment due to escalating tensions in the Middle East. UK retail sales data published by the Office for National Statistics for March showed no change from the previous month, falling short of the 0.3% increase expected by economists. This stagnation suggests that the Bank of England's high interest rates are significantly impacting consumer spending.
In Asia, the Japanese Yen (JPY) has strengthened owing to a rise in risk aversion following reports of Israeli missile strikes on Iran, as covered by ABC News. The Yen also saw support from Japan's latest inflation data. Additionally, Bank of Japan Governor Kazuo Ueda's hawkish remarks about potentially raising interest rates if the Yen's decline significantly fuels inflation added to the JPY's strength, affecting the USD/JPY currency pair.
In commodity markets, gold prices surged following the news of the Israeli strike on Iran, reflecting a temporary flight to safety among investors. Meanwhile, oil prices saw a sharp increase of over 3% after the same news, due to concerns about potential supply disruptions in the region, although gains were later pared back.