Author: Amar – Technical Analyst
US inflation expectations, based on the 10-year breakeven inflation rate from St. Louis Federal Reserve (FRED) data, renewed an all-time high of 2.94% by the close of Friday’s trading in New York. The inflation gauge rose for the second day in a row, beating the Fed’s interest rate ahead of this week’s key policy decision. It’s worth noting that inflation fears could push the Fed to hike rates by 0.50%. CME’s FedWatch tool also justifies the market’s hawkish expectations by mentioning that there is a probability of around 95.0% for such a decision. While the Fed linked alert could cast doubt on short-term market moves, recent upbeat headlines on Ukraine could help traders consolidate earlier losses.
The US dollar had another strong week, gaining +0.63%, its fifth straight weekly gain and seventh of the last eight. Despite experiencing considerable volatility, the EUR/USD exchange rate ended down just 0.17%. Instead, GBP/USD and USD/JPY rates were the factors driving DXY’s gains, with the former down 1.43% and the latter gaining +2.20%. As energy and grain prices calmed down, commodity currencies also fell: AUD/USD fell 1.14%; USD/CAD rates added +0.18%; and NZD/USD fell 0.80%.
Given the US dollar’s lack of reaction to what are usually important US economic data releases, it is reasonable to ask whether or not the March Fed meeting in and of itself will have a significant impact. In fact, sensitivity to US economic data has decreased since Fed Chairman Jerome Powell said he would support a 25-basis point rate hike this month. fait accompli and they immediately turned their attention to the headlines about Russia and Ukraine.