A glance at the upcoming day in European and global markets from Rae Wee:
The dollar is on track for its most significant weekly decline in nearly three months, with tonight’s U.S. jobs data poised to further test its strength.
For the dollar to alter its trajectory, it would require exceptionally robust job figures, given Federal Reserve Chair Jerome Powell’s recent indication that rate cuts could be on the horizon even amid low unemployment, provided inflation continues to ease. Forecasts suggest nonfarm payrolls likely increased by 200,000 in February, following January’s remarkable surge of 353,000.
Goldman Sachs analysts attribute January’s surge to fewer year-end layoffs, expecting job gains to normalize now that the seasonal layoff period has passed.
The anticipation for the Fed’s first rate cut is palpable, barring any surprises in next week’s U.S. inflation report.
The dollar’s recent downward trend, coupled with robust risk sentiment, has propelled the Australian dollar above the $0.6600 mark.
Gold and bitcoin reaching record highs this week underscore the dollar’s susceptibility to fluctuations.
Despite the European Central Bank’s (ECB) indication of a potential rate cut in June and downward revision of its inflation forecast, the euro is at a two-month peak, poised for its strongest week against the dollar in months.
FLIPPING THE SCRIPT
While much of the world is fixated on the trend of global monetary easing, Japan appears to be gearing up for a different narrative—a potential interest rate hike.
Bank of Japan (BOJ) officials have begun adopting a more hawkish tone, expressing growing confidence that Japan’s economy is inching closer to the BOJ’s 2% inflation target, just ahead of the central bank’s policy meeting on March 18-19.
Positive signals from wage negotiations with major Japanese companies suggest significant pay increases, paving the way for the BOJ to move away from negative interest rates. Some analysts speculate that this shift could occur as early as this month.
This sentiment has bolstered the yen, which has been overshadowed by a dominant dollar for much of the past two years, propelling it to a one-month high against the greenback on Friday.
Japan’s banking stocks index is also on track for its strongest weekly performance since September, reflecting renewed speculation about a potential policy adjustment ahead of the BOJ meeting.
“Our forecast of the BOJ removing negative interest rate policy in March and considering an additional rate hike in 2024 was once unconventional. However, more market participants and economists may now begin to factor in this scenario leading up to the March monetary policy meeting,” noted economists at Morgan Stanley MUFG Securities.