Forex Major Currencies Outlook (Mar 28 – Apr 2)

USD 

Talks about a 50 bp rate hike in May are mounting as Chairman Powell stated that they are ready to hike by more than 25 bp, if appropriate. Prospect of a 50bp rate hike has been supported by a fair amount of FOMC members. FedWatchTool now sees the probability of the event at 70.5%. Yield on 10y T-note was up to 2.489%, however the 2-10y spread went as low as 0.137 before stabilizing around 0.21. 

This week we will have Fed’s preferred inflation measure PCE and NFP data on Friday. Headline number is projected at around 475k, while the unemployment rate should tick down to 3.7% with wages rising about 0.2% m/m. 

Important news for USD: 

Thursday:

• PCE

Friday:

• Nonfram Payrolls
• Unemployment Rate
• Average Hourly Earnings 

EUR 

Preliminary PMI readings for the Eurozone, German and France in the month of March had a common team of smaller than expected slowdowns and mounting price pressures led by surging input prices index. French services reading deviated from the trend as it improved compared to the February reading (57.4 vs 55.5 the previous month) and dragged with it composite up to 56.2 from 55.5 in February. Eurozone manufacturing came in at 57, services at 54.8 and composite at 54.5. The numbers are still elevated but with ongoing Russia – Ukraine situation and with backlog of orders declining we can see them dropping in the coming months. 

Ifo report for March showed German business climate deteriorating to 90.8 from 98.5 in February and now barely holding above the level from January of 2021. Expectations plummeted even faster coming in at 85.1, down from 98.4 for the lowest reading since May of 2020, at the heart of first Covid wave. Ifo economist, Klaus Wohlrabe, stated that firms are facing bigger and bigger price pressures and are planning to increase prices. He added that supply chain issues have worsened since February. 

This week we will have preliminary inflation data for the month of March and continuation in trend is expected with a rise to 6.4% y/y for the headline reading and 3.2% y/y for the core reading. 

Important news for EUR: 

Friday:

• CPI 

GBP 

Inflation shows no signs of slowing down. Headline number for the month of February came in at 6.2% y/y vs 5.9% y/y as expected and up from 5.5% y/y in January with 0.8% m/m increase. Core reading came in at 5.2% y/y vs 5% y/y as expected and up from 4.4% y/y the previous month. The reading is highest in 30 years. It was led by higher energy prices, however food prices also contributed strongly with a 1% m/m rise. Inflation should continue rising and reach its peak in April. BOE will be forced to continue with hiking rates to achieve price stability and probability of a 50bp rate hike at the next meeting increased substantially after the report. 

Preliminary PMI data for the month of March showed a divergence between sectors. Manufacturing fell to 55.5 from 58 in February while services rose to 61 from 60.5 the previous month. Composite has followed manufacturing and slipped to 59.7 from 59.9 in February. Retail sales for February both missed expectations and were weaker than in January. Sales were down in non-store sales (-4.8%) and in food stores (-0.2%), with large falls in alcohol and tobacco stores. The readings indicate that mounting energy costs are starting to weigh in on consumer. Spring Budget statement showed a cut in projection for a 2022 GDP to 3.8% from 6% while GDP for 2023 is seen at 1.8%. The fuel duty has been cut until March of 2023 to help people cope with the surging fuel prices. 

AUD 

China has signaled its support for the economy in the previous week, however there were no changes to the rates. The 1-year loan rate is still at 3.7% while the 5-year is at 4.6%. Expectations are now that we will see a cut in reserve requirement as a way to stimulate the economy. City of Tangshan that boasts a population of more than 7 million people has been put into full lockdown. The city is located in a Hebei province, renowned for steel production, so the lockdown can negatively impact both supply chains and commodity prices. 

This week we will have official PMI data for the month of March from China. 

Important news for AUD: 

Thursday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China) 

NZD 

Trade balance data for the month of February showed improvement compared to the January reading and lead to a smaller deficit of -NZD385m vs -NZD1126m the previous month. Exports rose significantly as dairy prices continued to rise while imports declined somewhat, although there was still increase in import of petroleum and petrol products. 

CAD 

Preliminary manufacturing sales for the month of February rose 3.7% m/m. CAD has enjoyed a strong week on the back of rising oil prices and taking Russia’s place in exports. USDCAD has dropped below the 1.25 level at the end of the week. 

JPY 

Preliminary PMI data for the month of March showed improvement as manufacturing rose to 53.2, services to 48.7 and composite was pulled almost to the expansion level with 49.8. However, when we dig into the details of the report we see that main culprit for the rise in the reading are input prices. The report notes “Input prices rose at the fastest pace since August 2008 with businesses attributing the rise to surging raw material prices, notably energy, oil and semiconductors amid deteriorating supplier performance.” Additionally, new export orders have continued to plummet with manufacturing ones turning from growth to decline. Inflation data for the Tokyo area in the month of March were up from February numbers across the readings. Headline came in at 1.3% y/y, ex fresh food came in at 0.8% y/y while ex fresh food and energy came in at -0.4% y/y. 

CHF 

SNB total sight deposits for the week ending March 18 came in at CHF728.9bn vs CHF728bn the previous week. There was a small increase in the deposits but nothing noticeable as markets pushed EURCHF pair away from the parity toward the 1.03 level by the mid-week. SNB has published its 114 annual report for the year 2021 and it showed that total intervention in the markets was CHF21.1bn, more than five times lower than CHF109.7bn in 2020. 

SNB has decided to leave policy rate unchanged at -0.75% as widely expected. The usual comments about Swissy being highly valued and bank’s readiness to intervene if need arises were present. New inflation forecasts see it now at 2.1% for the 2022 before dropping to 0.9% in 2023 and 2024. Accompanying statement showed that “SNB assumes that energy prices will remain high for the time being, but that there will be no acute energy shortages in the major economic areas. It also anticipates that the global economic recovery will continue overall despite the war in Ukraine, albeit somewhat subdued. The higher commodity prices will lift inflation further in the short term.” They now see 2022 GDP growth at 2.5% and assess that risks for growth, for both global economy and Swiss economy, are considerable and skewed to the downside.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}