U.S. inflation data will maintain focus on interest rates and the dollar

General Comment

The events of the past week that have created volatility in financial markets mainly had to do with central bank decisions. The U.S. Federal Reserve’s decision last Wednesday was in line with expectations, leaving the benchmark interest rate unchanged within the range of 5.25% to 5.50%. The release of the dot plot offered insightful details into the Fed’s outlook. In terms of interest rate projections, the prevailing scenario is the previous December forecast of three rate cuts in the current year of 25 basis points each. The Federal Reserve also conveyed that economic risks have lessened, alleviating recession worries.

Currently, the CME Group’s FedWatch Tool indicates there’s an 87% chance that the Federal Reserve will maintain its current interest rate at the May 1 meeting. Furthermore, a significant majority of the market, around 75%, expects a rate cut by June. This data highlights a noticeable divergence in market dynamics and future expectations regarding interest rates.

There have been other major central bank decisions this week. We have seen changes in interest rates from the Bank of Japan and the Swiss National Bank as we will see in detail below. In both cases, the rise in interest rates was unexpected. The Bank of England left interest rates unchanged, so did the Bank of Australia as well as the People’s Bank of China.

In Europe, the European Central Bank is laying the groundwork for a potential rate cut in June, although many officials have noted that any decision will hinge on incoming macroeconomic data. ECB President Christine Lagarde echoed this sentiment on Friday, emphasizing that inflation is anticipated to decrease further in the coming months, and economic growth is expected to accelerate. Despite these assurances, Lagarde’s statements didn’t convince the financial markets significantly.

The geopolitical scene appears to have become more complex following a lethal assault on a concert venue in Moscow. This incident likely escalates tensions and adds another layer of difficulty to international relations, particularly involving the parties directly or indirectly associated with this event. While the responsibility for the attack was claimed by ISIS, the Russian leadership and President Putin directly accused Ukraine of involvement. This development triggers scenarios of an escalation of the war in Ukraine and greater tensions in the West’s relations with Russia.

The main equity markets in Europe and the United States continued their upward trend, making significant gains. The US dollar strengthened compared to its main competitors. Many commodity markets such as gold rose, with the exception of copper, which corrected significantly. We saw a slight downturn for bond yields with the U.S. 10-year bond yield closing the week just above 4.20%. Finally, the correction for Bitcoin and most cryptocurrencies continued for the second week in a row.

This week, which is also a Holy Week for Catholics, the focus of the markets will be on the announcement of personal consumption expenditures in the United States which is another indicator of inflation. Along with this indicator, the markets will also attach great importance to the announcement of U.S. GDP.




The US SP500 index was bullish last week as it closed at 5,234.18 points and profits of 2.30%. For another week the index hit new all-time highs. Markets believe that the period of high interest rates is coming to an end without significant economic complications or recession. The Fed left interest rates unchanged as expected, but markets were buoyed by statements from Bank chief Jerome Powell. which effectively heralded three rate cuts by the end of the year. The United States continues to announce impressive results for its economy. Building Permits and Housing starts had a remarkable rise in February. Also, all PMI indicators were announced on Thursday well above 50 which is the milestone of this measurement between contraction and growth. U.S. equity markets have been making notable gains in recent months with a focus on new technologies and artificial intelligence as there is optimism and belief that they could boost global GDP significantly. There may be some further concerns about recent events in Moscow and the deterioration of relations between the West and Russia. Also, the impressive rise of the last period for the SP500 may bring about profit taking. We may try short positions this week.



The German DAX40 index was bullish last week, closing at 18,205.94 points, with profits of 1.50%. The German index followed the optimism of all the main markets thus reaching new historical highs. Markets ‘ belief that the European Central Bank will start cutting interest rates soon enough is a factor helping economic sentiment and boosting equity markets. China’s latest recovery, also, favors Germany as China is a key export destination for Germany’s industrial products. Germany’s economic results over the last week were satisfactory. The producer price index fell 4.1%, indicating once again that inflation is falling. The PMI (composite and services) indicators rose last month but manufacturing was down. Finally, based on the latest surveys, business sentiment and expectations improved markedly. This week, retail sales and the unemployment rate are announced for Germany, so we will have a better picture.



The British FTSE100 index moved heavily upward last week, closing at 7,930.70 points, earning about 2.63%. The sharp decline in inflation in the UK (3.4% in February versus 4% in January) has fueled optimism in the investment community and the country’s equity markets. It is now appropriate to have interest rate cuts soon enough by the Bank of England since the problem of inflation seems to be decreasing. This fact was also confirmed through statements. On Friday, Andrew Bailey, the head of the Bank of England, suggested that markets should expect multiple interest rate cuts this year, citing growing confidence that inflation is on a downward trajectory towards the target, according to the Financial Times. We also had positive news on Friday after retail sales last month remained unchanged, disproving market expectations for a decline.



The previous week was bullish for gold, with the next month’s futures closing at $2,166.5 and losses close to 0.43%. During its March meeting last week, the Fed maintained its interest rate within the 5.25% to 5.50% range. Fed head Jerome Powell suggested that the central bank plans to implement three interest rate cuts in 2024. This indication has spurred greater interest among investors in the precious metal, contributing to an increase in gold prices as gold is a non-yielding asset. Following its new record highs above $2,200 after the Fed, the gold market has exhibited short-term signs of weakness due to conditions of being overbought and actions by traders to lock in profits. The gold market was also visibly affected by the dollar’s move since Thursday and after the dollar started to strengthen again, gold prices suffered a correction. Furthermore, the escalating geopolitical tension in Ukraine may boost the safe-haven assets, benefiting the gold price. President Putin openly accused Ukraine of involvement in the terrorist attack at a concert venue in Moscow a few days ago and this may cause another set of complications in the area and in general, in the relationships between Russia and the West. However, we believe that unless there are negative results in the upcoming U.S. economic (GDP) and inflation (PCE) data, expectations for U.S. interest rate cuts expectations will continue to lower and gold prices may suffer a new correction. We may try short positions this week.


US Oil

Last week was slightly bearish for oil with the next month’s futures closing at $80.82, with losses of 0.27%. The Fed’s monetary policy remains a pivotal influence on oil prices. Its choice to keep interest rates unchanged, coupled with forecasts of three rate cuts throughout the year. It could potentially spur economic expansion, possibly resulting in a rise in oil demand. Another factor that affects the oil prices seriously is the U.S. dollar, in which the oil is denominated. When the dollar strengthens, it renders oil more costly for those holding other currencies, which could lead to a decrease in global demand. The dollar completed two weeks in a row with a significant rise and this was a serious reason for stopping the uptrend rally. This uptrend rally started from above $71 and created a high price, early last week, of $83.85, which is the highest price since last October. As per the supply, the recent decision by OPEC+ members to prolong production cuts of 2.2 million barrels per day into the second quarter indicates expectations of tighter supplies. Additionally, drone strikes by Ukraine on Russian oil refineries could result in a reduction of fuel production by Russia. However, we believe that demand worries may prevail in the markets, and we may try short positions this week.



EURUSD (Euro US Dollar)
Last week was bearish for EURUSD as it opened at 1.0890 and closed at 1.0808. On Wednesday after the Fed announced it was leaving interest rates unchanged in the United States, the U.S. dollar had losses in particular following central bank chief Jerome Powell’s dovish press conference. Jerome Powell has mentioned three interest rate cuts in 2024. However, on Thursday and Friday, the U.S. dollar was significantly boosted by the belief that it would eventually be two instead of three cuts into the current year. In the Eurozone, the dominant scenario remains in June when it comes to cutting interest rates. The economic results of the Eurozone have been put on the back burner, which makes perfect sense since central banks are in the spotlight. Inflation in the Eurozone remained unchanged at 2.6%. The ZEW Economic Sentiment Index improved while PMI indicators had a positive result with the exception of manufacturing. For the United States inflation (PCE) and GDP announcements will dominate this week, and the picture of a strong U.S. economy could further support the dollar. We may try sell positions for one more week.


GBPUSD (Great Britain Pound – US Dollar)

Bearish was the last week for GBPUSD, as it opened at 1.2722 and closed around 1.2599. In a largely anticipated move, the Bank of England voted with a majority of eight to one to maintain interest rates at 5.25% for the fifth consecutive time. This decision did not come as a surprise to many, aligning with widespread expectations. However, the vote composition, with a majority of 8-1 in favor of maintaining the current rate, was somewhat unexpected given the recent changes in voting patterns. This shift indicates the central bank’s potential move towards a more accommodative policy stance. The recent inflation updates from the UK, released on Wednesday, indicated a monthly rise in inflation for February by 0.6%, a rebound from a 0.6% decline observed in the previous month. This increase, however, fell short of market expectations, which had predicted a 0.7% rise. On a yearly basis, the inflation growth moderated to 3.4% from 4.0% in January, again underperforming relative to market forecasts, which anticipated a 3.6% increase. This data suggests a cooling of inflationary pressures in the UK, albeit at a slightly less pace than what economists had estimated. On the other hand, the U.S. dollar has strengthened significantly because markets are confident that the rate cut will ultimately be two instead of three, and they are positively valuing the impressive performance of the U.S. economy lately. The exchange rate begins and acquires a downward trend which is not excluded from continuing and for this reason, we may try sell positions this week.


USDJPY (US DollarJapanese Yen)

USDJPY was bullish last week, opening at 148.94 and closing at 151.43. With this upward movement, the exchange rate approached the important resistance at 151.90, which has been a high price for many decades. The Bank of Japan has made a significant change to its monetary policy, setting the interest rate within a range of 0-0.1%. This move marks the end of the era of negative interest rates. Alongside this change, the bank also formally ended its yield curve control policy, which was intended to control short-and long-term interest rates. After this development, it would be logical for the Japanese currency to strengthen significantly, but the picture was the exact opposite. The announcement was interpreted as dovish, suggesting that any future policy tightening is expected to be gradual. This approach points to a continuing significant interest rate difference between the Fed and the Bank of Japan, a factor that is likely to favor the U.S. dollar. The trend is bullish but the resistance below $152 is strong and may cause corrections. Also, we cannot rule out a new intervention by Japan as it has happened again in such extreme price ranges. We may try sell positions this week.


EURJPY (EuroJapanese Yen)
Bullish was last week for EURJPY which opened at 162.13 and closed at 163.65. Although the euro was not particularly strong last week, the exchange rate managed to move higher mainly due to the weakness of the yen. The last time that we saw such a price for EURJPY was in 2008. The Bank of Japan may have raised interest rates, but the low rate of increase combined with the remaining interest rate gap among central banks is weakening the yen. Industrial production in Japan fell last month by 6.7% and inflation was announced at 2.8% which is remarkably high for Japanese data. Sell positions is our selection for the current week.


EURGBP (Euro – Great Britain Pound)

Last week was bullish for the EURGBP, as it opened at 0.8547 and closed at 0.8577. Both the euro and sterling fell last week in the face of the strong momentum and strength of the US dollar. But sterling’s weakness was more pronounced after last month’s sharp fall in inflation brought back interest rate cut scenarios from the Bank of England earlier than expected. The prevailing scenario for a reduction in interest rates in the Eurozone is next June and, on this basis, the market has compromised. As we have already mentioned and for technical reasons, the exchange rate reacts upward in the range of 0.85. This reaction may continue in the current week too and for this reason, we will prefer buy positions.


USDCAD (US Dollar – Canadian Dollar)

Bullish was the last week for USDCAD, as it opened at 1.3527 and closed at 1.3606. The exchange rate was clearly affected by the strong momentum and strength of the U.S. dollar, especially from Thursday onwards. The U.S. dollar strengthened even as Fed chief Jerome Powell announced three rate hikes in 2024 at Wednesday’s press conference. It seems that the markets have a different opinion that the reductions will be fewer. Oil prices have risen slightly, not much to help the Canadian dollar. The Canadian dollar additionally weakened on February’s inflation announcement. Inflation fell in February to 2.8% against the 3.1% that markets expected and 2.9% last month. Canada’s macroeconomic results were positive as both industrial production and retail sales rose. A strong U.S. economy through this week’s announcements (PCE and GDP) could further strengthen the U.S. dollar, which is why we would prefer buy positions for one more week.


USDCHF (US DollarSwiss Franc)
The USDCHF was bullish last week as the opening price was at 0.8825 and the closing price was at 0.8972. It was the biggest weekly rise for the exchange rate in many weeks, as in addition to the strength of the U.S. dollar, there was an obvious weakening of the Swiss currency. Starting with the dollar, there was a temporary weakening on Wednesday, following the Fed’s announcement of the interest rate decision and press conference. On Thursday, however, the dollar strengthened significantly, as markets were more hawkish than Fed officials. Moreover, there was a sudden reduction in interest rates by the Swiss National Bank. The Swiss National Bank has enacted a 0.25% rate cut, bringing the rate down to 1.50%, a move that aligns with expectations and cites diminished inflationary pressures and significantly reduced inflation projections. This decision marks the Swiss National Bank as the pioneer among G10 central banks to reduce rates, potentially signaling the onset of a global rate-cutting cycle. Within the week the exchange rate managed to exceed even 0.90, proving that the above events can leave behind this significant resistance. We may try buy positions this week.


AUDUSD (Australian Dollar – US Dollar)

Bearish was the last week for AUDUSD, which opened at 0.6558 and closed at 0.6514. The Reserve Bank of Australia decided to keep the interest rates steady at 4.35% for the fourth consecutive time, a move that was broadly anticipated. Consequently, the emphasis shifted towards the rate statement and Governor Bullock’s subsequent press conference for further insights. There was a discernible shift in the RBA’s messaging, diverging from its previous statement in February that did not dismiss the possibility of further rate increases. This adjustment did not go unnoticed by the markets, which took it as an indication that the RBA might be moving away from its former tendency to increase rates. However, the core message that inflation levels remain too high persists. China, which often influences the Australian dollar, also left interest rates unchanged at 3.45%, as markets had expected. China, however, had positive economic results as industrial production rose 7% last month and retail sales climbed 5.5%. Australia’s unemployment rate fell to 3.7% from 4% in the previous month. With the positive effects of China and the Australian economy, the exchange rate was able to limit its losses against the U.S. dollar. However, if the greenback continues to strengthen, there will be a further decline in the AUDUSD and therefore we may try sell positions this week.




Last week, Bitcoin was bearish and closed at $67,188 with losses of 1.70%. Two main reasons that can explain this correction are the strengthening of the U.S. dollar and the consolidation of profits by a share of investors, as the rise has been sharp and strong lately. The correction, however, for now, is not cause for concern as there is still the echo of ETFs in Bitcoin that has sparked a wave of enthusiasm and new investment funds for some months. Of course, this climate and these flows are not going to last forever. On the other hand, ahead is still the imminent halving of Bitcoin that traditionally drives up prices. Many analysts agree that a rise for Bitcoin could continue until this event, but since we are at new all-time highs, one could say that we are also in uncharted waters. The correction last week brought Bitcoin just above $60,000. There has been a serious recovery since then, but the week has started again negatively. We will prefer short positions for the current week.



The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.

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