Welcome to another edition of our weekly Forex Analytix market newsletter. We’ve had quite a week in the world of finance, marked by significant events that have sent ripples through the global markets. Here’s a recap of what transpired:
ECB Hikes Rates: One of the standout events of the week was the European Central Bank’s (ECB) decision to raise interest rates by 25 basis points (bps). This marked the ECB’s tenth consecutive rate hike since July of the previous year. The move was aimed at addressing rising inflationary pressures, which have been a growing concern in the eurozone. However, the ECB also revised its growth and inflation forecasts downward, indicating that they remain cautious about the economic outlook.
US Inflation Remains Elevated: In the United States, the Consumer Price Index (CPI) data showed that inflation remains stubbornly high. This has led to a growing belief in the “higher for longer” narrative, suggesting that elevated inflation levels may persist. The US Dollar continued to strengthen as a result, maintaining its position as the relatively stronger currency among the major currencies.
Currency Market Dynamics: The currency markets reacted to these events in various ways. The US Dollar Index (DXY) posted a 0.3% gain for the week, closing at 105.331. On the other hand, the Euro faced headwinds following the ECB’s rate hike, with the EURUSD pair declining by 0.4% to reach 1.0659. The British Pound also had a challenging week due to disappointing employment and GDP data, causing GBPUSD to drop below 1.24 for the first time in three months. Additionally, EURGBP closed above the 0.86 level.
Commodity Currencies Rebound: Commodity-linked currencies showed signs of recovery following weeks of declines, primarily driven by a rally in oil prices. The New Zealand Dollar (NZD) gained 0.2%, while the Australian Dollar (AUD) and Canadian Dollar (CAD) rallied by nearly 1%. However, the Norwegian Krone (NOK) underperformed, registering a 1% loss. Other major currencies, such as the Japanese Yen (JPY) and Swiss Franc (CHF), remained relatively stable. Meanwhile, the Mexican Peso (MXN) had an impressive week, appreciating by nearly 3%.
Oil Rally Continues: Oil prices extended their rally as supply cuts persisted, contributing to a tight market. West Texas Intermediate (WTI) crude oil surged by 4.6% during the week, closing at $91.17 per barrel.
Precious Metals Hold Steady: Despite rising yields and a stronger US Dollar, precious metals performed reasonably well. Gold and Silver both posted gains of approximately 0.5%, closing the week at $1,924 and $23.03 per ounce, respectively.
Equities and Bonds: Equities markets had a relatively quiet week as investors weighed the implications of higher inflation expectations. The S&P500 index experienced a marginal decline, closing at 4,450 points, while the DAX in Germany posted a 0.9% gain, closing at 15,877 points. In the bond market, yields rose for another week, with the 10-year US Treasury yield increasing by 6 basis points to 4.32%. However, bonds are now approaching important support levels, which will be closely monitored in the coming weeks.
Cryptocurrencies Consolidate: The cryptocurrency market continued to consolidate, with traders eagerly awaiting the next significant price movement. The direction of this movement is expected to depend on broader market sentiment. At the time of writing, Bitcoin had gained 2%, trading at $26,500, while Ethereum remained relatively flat at $1,640.
The Week Ahead: Looking ahead, the upcoming week promises to be eventful. The focal point will be the Federal Open Market Committee (FOMC) rate decision, where market participants will be keenly watching for any signals regarding future monetary policy. Additionally, central banks in Japan (BoJ), the United Kingdom (BoE), Switzerland (SNB), and Norway (Norges Bank) will announce their interest rate decisions. Economic data releases include inflation figures from Canada, the Eurozone, and the UK. It’s shaping up to be an exciting week in the world of finance, and traders should prepare for potential market-moving events. Good luck!
