Here is what you need to know on Wednesday, March 15:
The US Dollar dropped again on Tuesday, but it held above Monday’s lows. The Greenback remained weak despite US Consumer Price Index (CPI) numbers and a rebound in US Treasury yields. US stocks rose significantly, with the Dow Jones up by more than 1% and the Nasdaq rising by more than 2%. The VIX (Fear index) pulled back to 23.75.
US February CPI inflation rate came in line with expectations, slowing marginally to 6% YoY, the lowest since September 2021, and the core CPI rate to 5.5% YoY, the lowest since December 2021. The numbers still show elevated inflation numbers that, together with the latest employment data, would argue for a 25 bps rate hike at next week’s FOMC meeting. The failures of Silicon Valley Bank and Signature Bank clouded the outlook.
For how long will the SVB collapse will offset US economic data? On Wednesday, more inflation data is due with the Producer Price Index. Also, Retail Sales numbers will be released. The economic calendar also shows Chinese February Industrial Production and Retail Sales.
The DXY finished practically unchanged on Tuesday, due to the rebound in USD/JPY on the back of higher US yields. The US 10-year yield rose from 3.54% to 3.68% and the 2-year rate from 3.97% to 4.25%. The USD/JPY gained more than a hundred pips. The Bank of Japan (BoJ) will release the minutes of its January meeting on Wednesday. Contagion fears regarding SVB have reduced significantly, for the moment, the odds of a change in BoJ policy in 2023.
EUR/USD rose marginally, still capped by 1.0750. On Thursday, the European Central Bank (ECB) will have its monetary policy meeting. A 50 basis point rate hike is still expected despite the SVB drama. Attention would be on potential changes to its forward guidance.
GBP/USD remains in a tight range around 1.2160. The UK employment report on Tuesday showed upbeat numbers. The unemployment rate, expected to rise to 3.8%, remained steady at 3.7% in the period of three months ending in January; the economy added 65.000 jobs, above the 53.000 expected. Average hours earnings slowed from 6% to 5.7% YoY.
USD/CAD reached weekly lows at 1.3645 and then rebounded toward 1.3700. Manufacturing Sales in Canada rose 4.1% in January, surpassing expectations of a 3.9% gain.
AUD/USD and NZD/USD climbed on the back of a weaker US Dollar and an improvement in risk sentiment. Both currency pairs failed to reach fresh highs, capped by 0.6700 and 0.6250, respectively.
Bitcoin keeps making sharp moves. It peaked at $26,500 (highest since June 2022) and then pulled back to $24,500. Gold and Silver moved sideways, holding on to most of Monday’s gains.
The outlook for Crude Oil prices keeps getting worse. WTI dropped more than 4% and settled at the lowest level since mid-December below $72.00.
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