Here are the latest developments in global markets:
- FOREX: The US dollar traded higher today, reversing some of its losses in the previous days as investors were preparing their positions ahead of Wednesday’s Federal Reserve rate decision, where expectations are for the FOMC board members to raise interest rates for the first time this year. Dollar/yen rose towards 106.52 (+0.35%) after touching a session low of 106.00 earlier today and the US dollar index edged higher by 0.35%, breaking slightly above the 90.00 level. Earlier today, the Bank of Japan welcomed two new board members, who pledged to meet the central bank’s 2% inflation target as soon as possible. The British pound moved lower after the release of the UK CPI which fell to 2.7% y/y in February from the 3% in the previous month, missing expectations of a 2.8% increase. It was the lowest rate since July last year. Pound/dollar remained in the green but near to its opening level of 1.4030. Recall that on Monday, sterling posted a strong rally on the news that the UK and the EU had reached an agreement on the Brexit transition deal. This period will be between March 2019 and December 2020. Euro/dollar dropped to 1.2285 after the German ZEW economic sentiment appeared strongly lower than forecasted. Moreover, the commodity-linked currencies remained virtually unchanged during early European afternoon. Aussie/dollar hovered near a three-month low of 0.7685, being 0.04% down on the day. Kiwi/dollar remained under pressure near three-week lows, losing 0.37%, while dollar/loonie weakened by 0.05% to 1.3073 after it hit a 9-month high of 1.3124 on Monday.
- STOCKS: Following a plunge in the US and Asian indices triggered by a sell-off in technology shares, the European equities started the day on a softer tone. The blue-chip Euro Stoxx 50 was up by 0.15% at 1030 GMT, the German DAX 30 rose by 0.28% and the British FTSE 100 climbed by 0.34%.
- COMMODITIES: Oil rose to its highest level this month, due to tensions in the Middle East and the possibility of further fall in Venezuelan output. WTI crude oil rose by 1.13% to $62.51 a barrel and Brent crude oil surged by 1.17% to $66.84 a barrel. In precious metals, gold traded lower by 0.25% as the dollar awaits the Fed to shed some light on the path of US interest rates at the conclusion of its two-day policy meeting on Wednesday.
Day ahead: FOMC board members begin policy meeting; G20 meeting concludes
In the absence of major economic releases out of the US, the focus is turning to the Fed which starts its two-day monetary policy meeting today. It will be chaired by Jerome Powell for the first time since his nomination, with the rate announcement and fresh projections on the path of interest rates, economic growth, unemployment rate and inflation expected to be made on Wednesday at 1800 GMT. While a rate hike is a widely anticipated outcome with the CME Federal Reserve tool indicating an almost 95% probability of this happening, investors will be closely looking for any clues that could signal four rate hikes this year instead of three currently priced in the markets.
Given the latest upbeat evidence on the US economic performance and the potential positive effects stemming from the new tax overhaul, policymakers could back the scenario of ‘faster rate hikes than previously expected’, with the Fed Funds futures implying a probability of 35% of four or more rate rises in 2018 compared to less than 10% three months ago. However, the persisting softness in inflationary pressures could persuade policymakers to reiterate only gradual interest rate rises. Speaking on Monday in Philadelphia, Janet Yellen, the former Fed chair, said that a slower tightening could overheat the market, while a faster tightening could restrict inflation from reaching the Fed’s 2.0% target.
On the trade front, the G20 meeting concludes today and any valuable news out of the event could move the dollar. In case statements disappoint, fuelling concerns of a potential global trade war, the dollar could slip into losses, while a milder response could ease tensions and provide support to the greenback. Meanwhile, on Monday sources said that the US President is preparing to impose a $60 billion package of annual import tariffs on Chinese products to punish China for intellectual property theft, with the plan expected to be unveiled by Friday.
In terms of data releases, the economic calendar features January’s wholesale trade figures out of Canada later in the day at 1230 GMT and Eurozone flash estimates on consumer confidence for the month of March at 1500 GMT. New Zealand will see the results of the bi-weekly milk auctions today at a tentative time which could bring fresh volatility to the kiwi. Investors, though, could pay greater attention to the RBNZ policy meeting held on Thursday.
In energy markets, the American Petroleum Institute will publish readings on the US crude inventories at 2030 GMT. A meeting between the US President, Donald Trump, and the Saudi Arabian Crown Prince, Mohammed Bin Salman, could attract some attention as well, as both countries seem to be looking for ways to impose tougher measures against Iran’s nuclear program. Note that Saudi Arabia – US relations have been improving after tensions under the previous US administration. Therefore any intention between the countries to deliver a new round of sanctions against Iran could lift oil prices as this could weigh on Iranian oil supply.