Weekly market update 18 March – Dollar headed for its first decline in six weeks while commodity prices held steady
Weekly market update 18th March – Dollar headed for its first decline in six weeks while commodity prices held steady
1. The Dollar had its first weekly decline in six weeks and held around the 98 level on Friday as investors continued to monitor the effects of the Federal Reserve’s recent tightening of its monetary policy. Despite the recent hike in interest rates and signals for further increases in the remaining six meetings this year, the greenback pared recent gains. Additionally, the Federal Reserve also downgraded its GDP estimate for 2022 from 4% to 2.8%, citing the conflict between Russia and Ukraine and persistent inflationary pressures in the economy as main reasons for the more conservative outlook. Investors also continue to monitor the evolving situation between Russia and Ukraine, as ongoing ceasefire talks revealed that both parties have yet to reach a middle ground. Going into the next week, investors will be watching out for Fed Chair Jerome Powell’s speeches, as well as flash manufacturing and services PMI data as a gauge of how the U.S. economy is currently faring.
2. The Euro and Pound both outperformed the greenback for the week, with the Euro holding above the $1.10 level with a weekly gain of roughly 1%, while the Pound held above the $1.31 level as the week came to a close. The Eurozone continues to experience record-high levels of inflation which could be exacerbated by rising commodity prices and a tight labour market. This could worsen the outlook of the bloc’s economy going forward. In the coming week, ECB President Christine Lagarde will be speaking, and investors will be watching closely for further hints on its monetary policy direction going forward. Germany will also be releasing flash manufacturing and services PMI, which will give us an idea for how one of the larger economies in the Eurozone is faring. On the other hand, the BOE raised interest rates to pre-pandemic levels as per market expectations in its latest March 2022 meeting. The central bank warned that the ongoing crisis in Ukraine could further worsen inflationary pressures, which is expected to rise to 8% in Q2 2022, and hinder economic growth going forward. Investors will be watching the annual budget release and the speech from BOE Governor Andrew Bailey closely. CPI data is also due to be released, which would give us a better idea of inflationary pressures in the U.K.
3. Commodity currencies also outperformed the weakening dollar over the week, benefitting from a weaker greenback. The Aussie appreciated past $0.737 as the week came to a close, after unemployment data showed that the unemployment rate of 4%, which is a 14-year record low. This supports expectations of an earlier rate hike as the labour market recovery was ahead of expectations. Meanwhile, minutes from the latest RBA meeting acknowledged that the Russia-Ukraine war was a ‘major source of uncertainty’ that will be closely monitored. RBA Governor Lowe will be speaking in the coming week, which will be watched closely by investors. The Kiwi also appreciated past $0.688 before the week ended, as the country’s GDP was shown to have returned to growth in the final quarter of 2021. The Loonie benefitted from a rebound in commodity prices, closing in on its highest level since end January 2022.
4. WTI crude futures saw an 8% rally during the week, before steadying around $105 per barrel before the week closed. This comes after the ongoing ceasefire talks between Russia and Ukraine fell apart, breeding fears of further sanctions and disruptions to oil supply. On the other hand, gold prices weakened below $1,940 per ounce on Friday last week, as prospects of higher interest rates with impending rate hikes by major central banks outweighed demand for the safe-haven spurred on by geopolitical uncertainties. Elevated U.S. Treasury yields and a relatively steady dollar over the past few months also put pressure on gold prices. Similarly for most commodity markets, traders are assessing the geopolitical and economic uncertainties in these times, which continue to influence volatility in commodity prices.
