Fundamental Comment

This Week: US NFP, ECB and BOJ meetings; services reports

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The most important events this week that could weigh on the movements of major currencies will be US non-farm payrolls, ECB and BOJ monetary policy meetings and services reports from major economies.

The sentiment this week will probably be affected by services reports from major economies, in addition to the Bank of Japan monetary policy meeting, especially after the latest strength in the yen that hovered near 16 month high versus the U.S. dollar last week. 

Investors want to hear whether the BOJ and ECB would bridge the difference in monetary stance with the Federal Reserve, which plans to raise interest rates at least three times this year.

US Dollar

The U.S. dollar faced some sell off after touching a seven-week high as worries about President Donald Trump’s planned tariffs triggered higher demand on treasuries and thereby pushed yields lower.

Graving concerns of a trade war, especially with China, escalated last week as Trump announced plans to impose tariffs of 25% on imported steel and 10% on aluminum “for “a long period of time.”

The yield on U.S. 10-year treasuries slipped from four-year highs, pulling the dollar lower, where expectations of gradual pace of rate hikes by the Fed, as mentioned by Fed Chair Jerome Powell last week, forced the green currency to erase its earlier gains.

This week, eyes will focus on the U.S. non-farm payrolls that will give an update about the health of the labor market in the second month of the first quarter.

American employers have probably created 192,000 jobs in February and unemployment rate have lingered at 4.1 percent, the NFP may show.

The famous jobs report along with inflation data are likely to shape the future of rate hikes by the Fed, and therefore it could affect the movements of the dollar by the end of last week.

However, it seems that markets want to hear something above anticipations from the Fed, specifically four rate hikes instead of three.

Market participants will continue to watch treasury yield this week as it has been shaping the direction of the dollar over the past couple of weeks.

Euro

Last week, the euro was a reaction to the dollar’s movements, yet this may not occur this week as investors will focus on the European Central Bank’s policy meeting and press conference from ECB President Mario Draghi.

The most recent comments form Draghi has pointed to the necessity of holding stimulus despite the progress in economic data as inflation has remained far below the target.

Nevertheless, investors want to hear comments about bond purchases from Draghi this week, as the ECB has pledged to revise the monetary policy stance early this year.

The ECB will also announce the latest growth and inflation quarterly forecasts, which will be carefully monitored, after euro area inflation eased to 1.2 percent in the year ended February.

Pound Sterling

The pound sterling slipped last week due to the dollar’s strength and reports showing fragility in manufacturing and construction sectors.

U.K. manufacturing slowed to an eight-month low in February and construction growth remained weak, despite its rise.

Utmost attention will be on services PMI for February since the services sector is predominant sector in Britain.

Services growth may have widened to 53.4 last month from 53.0 in January, according to analysts’ projections.

Still, investors want to hear updates about negotiations with the EU regarding the Brexit deal, as business confidence has remained under pressure due to uncertainty.

Commodities

Gold slumped last week, as the strength of the dollar lowered the appeal of the precious metal as an alternative investment.

Gold has continued to face some downside pressure after hitting a top of $1361.71 an ounce on February 16.

Any attempts from the dollar to resume its rebound could trigger more selling in the yellow metal, yet it could rise slightly after finding support near $1300.  

Regarding oil, it reported its first weekly decline in three weeks last week on sell off in global equities after Trump’s planned tariffs.

U.S. crude inventories rose in the week ended February 23, adding extra pressure on prices, where it may have increased by 0.16 million barrels in the week ended March 2.

While U.S. crude output eased in December to 9.949 million barrels per day from a record high of 10.057 bpd in November, U.S. government forecasts production will climb to 11 million barrels per day later this year.

The Organization of the Petroleum Exporting Countries will meet with U.S. shale firms on Monday, to discuss methods to narrowing the glut in the energy market.

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