Weekly market update 11 March – Dollar pushed higher during the week, commodity currencies underperformed amidst geopolitical uncertainties
Weekly market update 11th March – Dollar pushed higher during the week, commodity currencies underperformed amidst geopolitical uncertainties
1. The Dollar continued to push higher during the week, closing around the 99 level as investors wait out for the upcoming Federal Reserve meeting scheduled in the coming week. The annual inflation rate in the U.S. accelerated to 7.9% in February this year, which was in line with market expectations but reached a fresh 40-year high. As such, many investors expect the Federal Reserve to make a more hawkish move in tightening monetary policy by raising interest rates by 25 basis points. Furthermore, the traditionally safe-haven dollar continued to benefit from flows towards safe-haven assets amidst the Russian-Ukrainian crisis, as the first round of talks between Russian and Ukrainian foreign ministers failed to achieve a ceasefire in the conflict. However, major U.S. stock indices fell over the week, with the S&P 500 falling 1.3%. The Dow Jones closed 230 points down, while the tech-heavy NASDAQ fell 2.1%. In the coming week, some key data such as PPI and retail sales data will be released. More importantly, the Federal Reserve and FOMC meeting minutes will be watched closely for the Fed’s stance on monetary policy going forward.
2. The Euro fell to below $1.10 over the week as investors digested the latest ECB monetary policy decision. ECB President Christine Lagarde mentioned that the faster pace of winding down asset purchases is a normalisation process due to high inflation, not a tightening of monetary policy. The bloc’s inflation is also running at record highs and is likely to continue on the back of higher commodity prices and a tight labour market. The ECB has mentioned that it may end asset purchases in Q3 2022 over concerns of surging inflation. Going into the week, the Euro is expected to continue underperforming, and investors will be watching out for ECB President Lagarde’s speech happening near the end of the week. On the other hand, the Sterling also similarly underperformed against the stronger Dollar, falling to $1.30 in its third consecutive week of declines due to concerns over growth and inflation in the U.K. amidst the Russian-Ukrainian crisis. Investors will be watching the upcoming BOE meeting, where market expectations are for the BOE to raise interest rates again by 25 basis points to combat inflation.
3. Commodity currencies generally underperformed against the stronger dollar over the week. The Aussie ended the week below the $0.730 mark due to uncertainties around the outlook for inflation and monetary policy and increased volatility in the commodities markets. Investors are looking out for the monetary policy meeting minutes for hints on the RBA’s stance on monetary policy stance, as well as unemployment rate data for an idea of the state of Australia’s labour market. The Kiwi also dropped below $0.685 over the week, while the Loonie remained little changed around the $1.27 level. In the coming week, the release of CPI data and retail sales data will be watched closely by investors. On the other hand, crude oil prices continued to stay elevated, with WTI futures ending 3.1% at the end of Friday to trade around $109 per barrel. However, crude oil futures posted 5.7% decline on the week, as investors weighed efforts to bring more supply to the market against fears of an imminent Russian embargo. Going forward, expectations of further supply constraints in the oil market could continue to push oil prices higher. Also, gold prices held below $2,000 an ounce, as investors weighed geopolitical uncertainties against a commodity-driven rise in inflation that prompted central banks to be more willing to tighten monetary policy earlier. Going forward, given the uncertain geopolitical situation, the traditional safe-haven could maintain its strength in the near term.