Fundamental Comment

This Week: Fed rate decision, UK data in focus

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The most important events this week that could weigh on the movements of major currencies will be the awaited interest rate decision by the Federal Reserve and U.K. data and monetary decision.

US Dollar

The U.S. dollar continued its sideway movements last week, as it has remained trapped between political concerns over Trump’s administration and improvement in economic data.

This week, eyes will focus on the rate decision by the Federal Reserve, where they will start a two-day policy meeting on March 20 to decide on interest rates.

Expectations are in favor of seeing a 25-basis point increase in the Fed’s borrowing cost, where Fed funds futures are pricing in a 100% chance of a rate hike.  

Labor market data released recently has suggested the world’s biggest economy is on strong footing and ready for at least three rate hikes this year.

However, investors will continue to track the latest updates about Trump’s new tariffs and the internal changes in his administration.

Some analysts suggest that political news could have more impact on the dollar’s movements next week since the rate hike is already priced by the market and there is a slight chance of seeing any surprise.

South Korea mentioned last week that they would discuss concerns on trade frictions to the United States during the G20 finance ministers’ meeting held on March 19-20 in Buenos Aires.

Pound Sterling

The movements of the pound sterling this week will rely on important economic data including CPI and unemployment, in addition to the Bank of England’s interest rate decision.

Consumer prices index may signal an ease to 2.9 percent in the year ended February from 3.0 percent, according to analysts’ projections.

As for the unemployment report, the wage growth for the three months through January is predicted to linger at 2.5 percent.

Despite the expected narrowing in the gap between wage growth and inflation, policymakers are likely to hold interest rates next week at 0.50 percent.

Nevertheless, eyes will focus on the nine-member panel’s vote to the rate decision to see if there is any change towards raising interest rates.

Euro

This week, the most important data from the euro area will be the flash manufacturing and services PMI for the month of March.

Analysts predict an ease in the pace of expansion in March, as depicted by the Composite PMI index, to 56.4 in March from 57.1 in February.

The data will be carefully watched, as it will reflect the strength of the growth in the 19-nation region in the last month of the first quarter.

However, European Central Bank President Mario Draghi said last week the ECB will hold stimulus until inflation reaches target.

Euro area final CPI reading for the year ended February released last week confirmed a 1.2 percent increase, which is still far from the ECB’s target.

Commodities

Gold remained under pressure last week as the political concerns were offset by rising bets the Fed would hike interest rates.

Gold has continued to face some downside pressure after hitting a top of $1340.49 an ounce on March 7, yet it continued to find support near $1316.

The Fed’s rate decision may weigh on gold prices next week since the yellow metal does not provide any return to its holders.  

Regarding oil, it faced some pressure last week on concerns that the rising U.S. crude production would outweigh efforts by OPEC and its allies to balance oil prices.   

U.S. crude inventories may have surged by 1.4 million barrels in the week ended March 16, following a 5 million barrel increase a week earlier, the EIA government report may show this week. That would be the fourth straight weekly rise in US crude stockpiles.

U.S. production would grow by 1.8 million bpd this year, compared to an increase of 760,000 bpd last year, the International Energy Agency said last week.

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