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Interest rate cuts by the Fed vs. key data

by SuperiorInvest


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Bets on the potential timing of interest rate cuts by the Federal Reserve once again dominated sentiment in the FX galaxy this week. However, investors seem to have already priced in the likelihood of a rate cut at the June event. This subsequently translated into a revival of renewed selling interest around the dollar along with some skepticism, prompting the USD index (DXY) to retreat to three-week lows in the sub-104.00 zone.

On February 26, only new home sales for the month of January will appear in the US. Durable goods orders, the FHFA home price index and consumer confidence as measured by the conference committee are expected to be released on February 27, while further revisions to Q4 GDP growth and advanced trade balance results are due on February 28. PCE inflation takes center stage on the last day of the month, accompanied by the usual weekly Initial Jobless Claims, Pending Home Sales and Personal Income/Spending. March 1 final Manufacturing PMI is due, followed by the ever relevant ISM Manufacturing PMI, Construction Spending and the final Michigan Consumer Sentiment print. The USD Index (DXY) traded in a bearish bias throughout the week and broke below the 104.00 ley support while printing new multi-week lows.

Looking at the Euro calendar, GfK consumer confidence in Germany will get all the attention on February 27. In addition, final consumer confidence and economic sentiment in the Eurozone are due on February 28. On February 29, Germany will be in the spotlight with the release of retail sales, a report on the labor market and a preliminary rate of inflation. Finally, the final manufacturing PMI is due in Germany and Euroland is seconded by flash inflation and unemployment rates in the bloc. EUR/USD extended its recovery and crossed the 1.0800 mark with some conviction on the back of fresh bearish tone in the dollar.

House prices tracked by Nationwide are due across the Channel on February 29, along with data on mortgage approvals and mortgage lending. After the weekly docket closes, the final manufacturing PMI is due on March 1st. GBP/USD ended the week on a positive note, approaching the key 1.2700 level.

In Japan, the inflation rate is due on February 27, ahead of the release of the final Coincident Index and Leading Economic Index on February 28. Later, weekly data on foreign bond investment, flash industrial production, retail sales and construction starts will be due in February. 29, while Unemployment rate and consumer confidence are expected on March 1. USD/JPY moved in a choppy fashion, although it managed to hold a trade at the upper end of the range around the 150.00 zone.

Below, the focus of debate on February 28 will be the RBA's monthly CPI indicator, followed by home loans, retail sales and the final Judo Bank Manufacturing PMI on February 29. AUD/USD it consolidated its rebound and advanced north of the 0.6500 milestone, an area that coincides with the 200-day SMA.

In China, the NBS will release its manufacturing PMI and non-manufacturing PMI on March 1. USD/CNH recovered somewhat in the latter part of the week after bottoming out at three-week lows around 7.1800.

Forecasting Economic Prospects: Voices on the Horizon

  • C. Lagarde from the ECB speaks on February 26.
  • The Fed's R. Bostic, S. Collins and J. Williams will speak on February 28, along with the ECB's McCaul.
  • The Fed's R. Bostic, A. Goolsbee and L. Mester will speak on February 29
  • The Fed's J. Williams, R. Bostic and M. Daly also have a March 1 deadline.

Central banks: Upcoming meetings to shape monetary policy

  • The Hungarian Central Bank (MNB) is expected to cut its key interest rate by 100 bps to 9.00% on February 27.

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