The dollar is nearing the highs of the yearMar 1, 2023
- EUR/USD 1.0613
- DOW JONES 32’656.70
- USD/CHF 0.9400
- SMI 11’098.35
- EUR/CHF 0.9975
- WTI CRUDE OIL 77.65
- USD/RUB 75.25
- XAU/USD 1'834.00
The dollar is still closer to its highest level of the year against the euro. Trading at 1.0548 on Friday, it was only a few points from its peak at 1.0522 on 5 January. The publication of the minutes of the Fed's latest monetary policy meeting last Thursday provided further support to the greenback. These minutes showed that the Fed is holding firm in its fight against inflation and that some members even wanted to hike rates more than the 25 basis points finally decided on 1 February. St. Louis Fed Chairman James Bullard reiterated that a benchmark interest rate in a range of 5.25% - 5.50% should be sufficient to control inflation. Federal funds futures are now at 5.42% for October. Although they have fallen slightly, these same future contracts see rates remain above 5% until April 2024 anyway. In any case, the Fed cannot yet lower its guard. The January PCE index, which measures consumer spending prices for goods and services, one of the Fed's preferred measures, rose sharply to 5.4% in January from 5% the previous month. This means consumer spending by households also increased more sharply than expected. These latest figures will undoubtedly encourage those who wanted a sharper increase on 1 February. This means that the central bank should continue its restrictive stance while maintaining a high level of aggressiveness. Friday's numbers support the market's view that a 50 basis point hike on 22 March is not at all unrealistic. However, we must guard against euphoria as the long-term yield curve remains inverted and suggests a possible recession or in any case a sharp slowdown. The 2-year Treasury note this morning offered a yield of 4.85%, the 5-year yield, 4.22%, and the 10-year yield, 3.96%.
Inflation in Europe remains very high at 8.6%, an increase of 0.10 in January compared to the previous month, which should lead to further interest rate hikes and should support the EUR/CHF exchange rate in the coming weeks. The European Central Bank meets on 16 March, exactly a week before the Swiss National Bank, and is expected to raise rates again by half a percent while its Swiss counterpart is expected to be a little more measured and do so by only a quarter point. This rate spread will therefore play even more favour of the single currency. But we have seen it. The SNB does not want the franc to fall too much in order to contain imported inflation and should therefore be active again on the markets if the price rises above parity over the long term.
The announcement on Monday of an agreement in principle between the United Kingdom and the European Union on the North Irish protocol benefited the British currency, which rebounded strongly. While it was hovering around $1.1930 – close to the year's lows – it rebounded to $1.2140 yesterday. The easing of tensions between the two parties provides a respite for the pound, which remains heavily affected by the UK's economic situation and the fallout from Brexit. Retail prices rose the most since 2005 to 8.4% in February. Food prices even increased by 14.5%.
In Australia, the economy grew at its slowest pace in a year in the last quarter. Rising interest rates and high inflation point to a further slowdown ahead. Real GDP increased by 0.5% in the December quarter, down from 0.7% in the previous quarter and below expectations of 0.8%. The central bank raised official interest rates by 325 basis points in 10 months and further hikes are expected in April and may be in May.
In Turkey, to deal with the urgency of the situation due to the recent earthquake, the Central Bank of Turkey has resumed its rate cuts. It cut its key interest rate by 50 basis points to 8.50% to ease financial conditions further. However, this is less than expected by economists.
The ounce of gold continues to fall due to the strength of the greenback and the prospect of a prolonged increase in the cost of money. The price of the yellow metal fell to its lowest point of the year at $1,804.92 per ounce. Technically, the $1,800–$1,806 area is an important support that, should it be crossed, would open the door to a shaper fall to $1,785, perhaps even $1,730.