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Fed could Taper Sooner; U.S. Dollar Higher, Cryptos Fall

The Fed’s monetary policy decision due this week, the tense geopolitical situation in Eastern Europe and the medical optimism over the decrease in coronavirus cases are the leading driving forces behind the movements of this week’s start.

US Dollar

The dollar advanced on Monday morning in Asia. The increasing tensions in Ukraine and a possible hawkish move by the Federal Reserve at this week’s meeting cause worry to investors.
The U.S. State Department called diplomats and their families to leave Ukraine as the Kremlin massed troops close to its borders with Ukraine for what is believed to be a start to a war to stop Ukraine from joining NATO.

A key factor driving currency markets is the timing and the pace at which central banks increase interest rates and start asset tapering. The Fed is scheduled to announce its policy decision this Wednesday. It is expected that that the Fed will adopt a tighter monetary policy faster than expected as inflation is consistently high. Some believe, the Fed could increase interest rates starting this week, while others think the first hike will take place in March.

Investors are also closely watching, the Bank of Canada’s policy decision which will be announced on the same day as the Fed’s. Meanwhile, Australia’s consumer price index is released on Tuesday, and it could help determine the Reserve Bank of Australia’s policy decision to be announced in February.

Cryptocurrencies

Bitcoin is trading around $35,000 after falling to as low as $34,000 on Saturday – its lowest level since July 2021. The digital asset is nearly half in value from its November all time high of $69,000.
Ether, the world’s second largest cryptocurrency, hit $2,440 on Saturday, its lowest level since July last year. The sell-off in cryptos and other risk assets could reflect expectations that the Fed will increase rates more aggressively than originally thought.

Oil

Oil advanced at the start of the week as investors believe that demand will rise with the omicron virus wave weakening in key economies. Brent rose to $89 a barrel following five consecutive weeks of gains. Optimism by medical experts that the new variant cases will drop, could mean that more workers will return to work travelling will increase and demand will rise.

Crude oil had a strong start to 2022. Prices rocketed to their highest levels since 2024, demand increased, stockpiles dropped, and top banks published bullish oil forecasts. Goldman Sachs and Morgan Stanley expect Brent crude to hit $100 by the third quarter of 2022 while Bank of America expects it to increase to $120 a barrel mid-year.

Gold

Gold traded higher on Monday morning in Asia. While investors are preparing for the Fed’s upcoming policy decision, inflation is rising, and geopolitical tensions in Eastern Europe are increasing, the shiny metal could become an attractive asset.

In the previous week, gold was sold at a discount in India as domestic prices increased and affected demand. The Lunar New Year holiday is causing demand in Asia to rise.

In other precious metals, silver was stable, palladium was down, and platinum rose.

What to Watch out for this Week:

Monday:
PMIs for the Eurozone, France, Germany, UK & Australia

Tuesday:
Australia CPI

Wednesday
U.S. Fed Interest Rate Decision
Bank of Canada Interest Rate Decision

Thursday:
U.S. 4th quarter GDP growth data
U.S. initial jobless claims and durable goods

Throughout the whole week:
U.S. Companies’ earnings reports (including Apple, Microsoft, Samsung Electronics, Tesla, Boeing, Deutsche Bank)