Weekly Market Outlook – The Russian-Ukrainian war will continue to weigh on global markets this week in the absence of central banks meetings and major data releases. Meanwhile, it is a busy week for the US markets as investors await March NFP payroll report and personal consumption expenditures numbers for any clues if the Fed will tighten the monetary policy faster than expected. Key Releases on the economic calendar this week include the Canadian GDP data, US ISM Manufacturing PMI and EUR CPI Flash Estimates. BoE governor Andrew Bailey will also be in focus.
USD Turns to NFP Data
All eyes turn to personal consumption expenditures on Thursday and March non-farm payrolls on Friday. The US economy is projected to add 485K jobs with the unemployment rate likely to fall to 3.7% from 3.8% in February. Hourly earnings are set to accelerate by 0.4% on a monthly basis and 5.5% on an annual basis. Personal consumption expenditures are expected to print a 6.7% annual gain in February. Better-than-expected data will intensify the case for a faster tightening course by the Federal Reserve that keeps confirming the urge to accelerate its tightening bias to subdue inflationary pressures. The US dollar remains near this year’s high, trading around 98.80s levels.
FOMC members voted to increase the fed funds rate by 25bp in its March meeting and officials are expecting additional six hikes this year to peak at 2.8% in 2023. Fed members noted the economic uncertainty in the wake of rising geopolitical tensions. However, that is not expected to hinder shrinking the Fed balance this summer.
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The committee mentioned that both economic activity and employment indicators have continued to strengthen while inflation remained elevated reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. Despite the uncertainty around the economy, the board noted that recent events are likely to create additional upward pressure on inflation and weigh on economic activity. In this regard, the committee is prepared to do whatever it takes to keep inflation under control. This opens the door for an aggressive series of rate hikes before year end.
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Can Bailey’s Speech Revive the GBP?
The British Pound has been under pressure as inflation is expected to hit a 40-year high of 8.7% this year which will squeeze living standards. BoE governor Andrew Bailey will be speaking about macroeconomics and financial stability at an online event on Monday, while investors will be looking at clues regarding the policy path this year.
The drastic surge in inflation rates pushed the bank to raise interest rates for the third meeting in a row bringing interest rates in the UK to its pre-pandemic levels. It is expected to be followed by multiple rates before year end to tame inflationary pressures that have been intensified by the rising geopolitical tensions in Europe. The BoE was the first major central bank to hike interest rates since the pandemic hit the global economy a couple of years ago.
On the data front, the UK current account is set for another deficit of 18.5 billion pounds Q4 of 2021. Final GDP is forecasted to show a stabilized growth at 1% between October and December.
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