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USD
All eyes were on the FOMC meeting on Wednesday, as Fed chair Jerome Powell delivered the committee’s revised economic forecasts. Real GDP for 2021 is now expected at 6.5%, up from 4.2% in December. Unemployment has been revised down to 4.5%, from 5% in December, further indicating that the economic recovery is well on its way.
Most notable was the upwards revision of inflation, which is now forecasted at 2.4% for 2021 (up from 1.8%). Powell indicated that inflation is likely to rise over the next few months, driven by pent-up demand. However, the Fed did not push back against rising inflation, reiterating their commitment to accommodative monetary policy until full employment in the labor market is achieved. Powell highlighted that employment is far from pre-pandemic levels, and indicated that the Fed will support the economy for as long as is necessary.
Interest rates will remain at 0.25% and the Fed will continue with their Quantitative Easing bond purchasing plan, including treasury securities and agency mortgage-back securities. It is worth noting that, while the majority of the committee does not foresee any interest rate hikes over the next 3 years, an additional three members predict a rate hike in 2022. Furthermore, seven committee members expect interest rates to rise in 2023 (up from five members in December). Yields on US 10-year government bonds rose by 6.5% during the week, reaching new highs and closing the week at 1.73%.
SGD, HKD and AED
Unemployment figures were released last week for both of our Asian-market currency pairs. Hong Kong’s unemployment rate came in at 7.2% for February (rising from 7% in January) whilst Q4 unemployment in Singapore is up by 0.1%, at 3.3%.
This week, the USD/HKD and USD/SGD currency pairs were largely influenced by the FOMC Meeting and dollar rebalancing, somewhat shrugging off local unemployment data. Both pairs saw a significant mid-week fall, with USD/SGDN finding resistance around the 1.340 mark (down from 1.3450 at the beginning of the week.). Nevertheless, the end-of-week dollar pullback saw the currency pairs rise, as optimism over the global economic recovery continues to grow.
This week, we will hear about the February inflation for the Asian markets. Hong Kong CPI for February will be released, after last month’s 1.9% figure. Singapore CPI is also due after February’s reported 0.2% growth. Industrial Production figures for Singapore are also in this week.
GBP
The narrative in the U.K appears to somewhat mimic that of the US Fed, with an emphasis on economic recovery taking preference over inflation concerns.
Bank of England’s Andrew Bailey believes the recovery will be above pre-pandemic levels by the end of the year. With almost 50% of the population having had their first dose of the vaccine, there are strong prospects of a full economic recovery coming sooner than expected. Bailey touched on inflation, indicating that short-term inflation will likely exceed 2%. He didn’t appear too concerned about this, highlighting the preference for economic growth. As expected, the Bank Of England will hold their benchmark interest rate at 0.1% and will continue with their £875 billion bond-buying programs.
EUR
The Eurozone continues to lag behind the rest of the G7, concerning the economic recovery. Slow vaccination progress has weighed on the Euro, which continues its slump against developed market currencies. Coupled with blood clot fears surrounding the AstraZeneca vaccine, the Euro continued to trade with a bearish tone. Both USD/EUR and GBP/EUR currency pairs appreciated throughout the week, by 0.18% and 0.06% respectively, despite the actions of the Federal Reserve.
The European Central Bank will be meeting this week, after last week’s decision to implement an emergency bond purchase plan. Interest rates are expected to remain at record low levels, as the ECB continues to support increased economic activity. Consumer confidence will be released for the Euro area and is expected to come in at -14.8 for March.
AUD
The Aussie dollar made gains on the back of the FOMC meeting. However, dollar strength on Friday saw the pair end the week on even ground. USD/AUD traded relatively flat on Monday and Tuesday, before dipping on Wednesday and retracing lost ground for the remainder of the week.
Unemployment in Australia saw a swift decline to 5.8% in February, down from 6.4% MoM, with 88 700 jobs added in the month. However, despite strong employment data, Retail sales declined by 1.1% in February.
This week, Manufacturing PMI for March will be released, which is expected to come in slightly below last month’s figure of 56.9. Output and new orders increasing for the 8th consecutive month, although at a slight drag compared to January’s 36-month highs.
NZD
The Kiwi dollar followed a similar see-saw-like performance, with GBP/NZD and USD/NZD falling sharply on Wednesday and recouping the losses towards the end of the week. The Kiwi ended the week flat against developed market currencies and strengthened slightly against the Aussie Dollar.
Gross Domestic Product for the quarter was reported at -1%, underwhelming the expected 0.2% growth. This puts GDP growth at -0.9% YoY. The current account deficit continued to shrink, exceeding expectations and coming in at -$2.7 billion.
This week, the Westpac Consumer Survey will be released for Q1. The countries Trade balance for February will also be in. January’s trade deficit was -$626 million, after exports fell by 486 and imports fell by 256, and is expected to continue to shrink.
ZAR
The rand was unable to avoid the influences of global market factors, remaining volatile and moving on global influences. The USD/ZAR pair fell by 1.4% on Wednesday and ended the week 1.55% lower. The GBP/ZAR pair experienced similar movements, closing the week 1.92% lower around R20.40.
This week, South Africa’s February inflation figures will be reported. CPI for the month is expected at 0.1%, slightly lower than January’s figure of 0.3%. PPI is expected 0.6% for the month, and 3.8% YoY. The South African Reserve Bank will also be deciding on their interest rates, which is expected to remain at 3.5%.
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