The Week Ahead – Data confirmation
EURUSD consolidates before ECB hike
The euro steadies as another 50 bp rate hike seems to be a done deal this week. Markets are wagering a full percentage point from the ECB in the coming months. According to an ECB survey, inflation expectations fell across the bloc from 5.0% to 4.9% for the next 12 months, however, wage growth is likely to catch up, negating efforts to tame prices. Despite some dovish voices, the ECB is widely regarded as assertive and that explains why the euro has held relatively well against the greenback, especially after the Fed hinted at doubling down on its own tightening agenda. 1.0480 is a key floor and 1.1000 a major ceiling.
GBPUSD falters as BoE policy lags behind
The pound slips as traders bet that the BoE policy may not match the pace of the Fed. The UK central bank has suggested that it was close to the end of its tightening cycle. However, the market is pricing in a 25 bp rate increase at the March policy meeting following the Fed’s lead to push even higher. Nevertheless, the pound’s relative weakness reflects the divergence in hawkishness across the pond due to stronger US economic fundamentals. Any market move driven by the UK unemployment rate could be negated by the US inflation reading later on. 1.1600 is an important support and 1.2450 a fresh resistance.
XAUUSD slips as bond yields rise
Gold struggles as bond yields continue upward amid Fed pivot uncertainty. Robust US economic data in recent weeks spurred worries that policymakers have returned to their hawkish seats. With the dollar index hitting a three-month high, the precious metal is inversely mirroring that performance. As speculations on the terminal rate run wild amid talks of 5% or even 6%, when it comes to investors’ asset allocation, the no-interest-bearing metal looks dull because of the rising opportunity cost. An extended rally of the US dollar would further weigh on gold demand. 1775 is the closest support and 1900 a fresh resistance.
NAS 100 struggles as Fed may double down
The Nasdaq 100 pauses as February’s nonfarm payrolls raise fear of sustained tightening. Fed Chair Jerome Powell’s call for interest rates to go even higher might have shuffled the cards. The prospect of a return to large-sized-hikes has poured cold water on risk assets. A 50 bp increase would be back on the table if the upcoming CPI shows that it is still a long way to go to bring down consumer prices. The global jitter over banking stocks could pose a systemic risk if borrowing costs keep climbing, and is definitely something to have in the back of investors’ minds. 11820 is the closest support and 12800 remains a key hurdle.