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US dollar stronger as investors weigh inflation, lockdowns, war

Investors’ sentiment continues to be affected by the Fed’s hawkish attitude, the Russian invasion-related commodity disruption, the possibility of an economic slowdown, and China’s lockdowns which threaten to further intensify supply-chain disruptions while further fueling inflation risks.

US Treasuries

US treasuries, stocks, and US equity futures fell today, Monday as concerns surrounding inflation and tightening monetary policies are intensifying.

The US 10-year treasury yield reached 2.77%. It surpassed its corresponding rate for Chinese debt for the first time in 12 years. At the same time, real US yields are close to turning positive – a development that could hinder investment in risk assets.

WTI Oil & Brent Crude Oil

The price of crude oil retreated today, Monday, recording a second week of declines. Decreasing demand for the commodity sparked by China’s covid-related lockdowns and joint plans from the IEA and the US government to release a record volume of crude and oil products from strategic reserves are possible factors driving the price of the black gold down.

Trading Forex

The Japanese yen fell to a two-week low against the US currency as increasing Treasury yields enhanced the US dollar’s appeal to investors.

The euro climbed against the US dollar before declining. The decline followed Emmanuel Macron’s narrow advantage over his nationalist opponent Marine Le Pen in the first round. Investors are concerned over the possibility of Le Pen as a president making France less business-friendly and more Euroskeptic.

Trading Metals

Gold prices fell today, Monday as increasing Treasury yields made the US dollar a more attractive asset and the shiny commodity a less attractive one; despite new concerns over the Russian invasion in Ukraine.

In the meantime, the auto-catalyst production metal- palladium – extended its gains after hitting a more than two-week high earlier in the session. The rise was sparked when trading for newly refined Russian platinum and palladium was suspended in London, the metals’ greatest trade hub.

Bitcoin & More Cryptos

Bitcoin, the largest cryptocurrency by market cap, fell below $42,000 for the first time since late March. A general decline in various cryptocurrencies has been triggered by rising worries over tighter monetary policy and increasing interest rates.

What to Watch out for this Week:

Earnings season begins with reports from Goldman Sachs, Morgan Stanley, and more

Monday
Chicago Fed President’s speech
EU foreign ministers’ meeting

Tuesday
U.S. CPI
OPEC monthly oil market report
Fed Governor’s speech
Richmond Fed President’s speech

Wednesday
Bank of Canada rate decision
EIA crude oil inventory report
Reserve Bank of New Zealand rate decision
China trade, medium-term lending facilities

Thursday
ECB rate decision
Bank of Korea policy decision
U.S. retail sales
US initial jobless claims
US business inventories
University of Michigan consumer sentiment
Cleveland Fed President’s speech
Philadelphia Fed President’s speech

Friday
Certain stock and bond markets may be closed for Good Friday

With the Omicron coronavirus variant uncertainty looming over the financial markets, all eyes are on global central banks as they are expected to release their policy decisions. Will they taper stimulus sooner than expected or not?

The Inflation Dilemma

Global central banks’ policies are far from in harmony as the COVID-19 Omicron variant further complicates an uneven global recovery and high inflation.

Around 20 central banks including the U.S. Fed, the European Central Bank, the Bank of England, and the Bank of Japan will present their policy decisions on future interest rates this week. Banks are expected to act at different speeds, as each of the central banks will respond differently to the pandemic and the varying growth and inflation outlooks.

Central banks are in the spotlight as if they decide to move fast to contain inflation, they could hurt the developing economic recovery. However, if they wait too long, they may have to turn to aggressive interest rates increases in the future which could potentially cause a recession.

U.S. Dollar

The U.S. dollar climbed to a one-week high against other major fiat currencies today, Tuesday. The currency was boosted by expectations that the Fed will start tapering its bond buying stimulus sooner than expected and will increase interest rates earlier in 2022. The dollar was also supported by increasing “safe haven” demand caused by the Omicron coronavirus variant uncertainty.

Gold

Gold prices recorded minor losses on Tuesday morning as investors are expecting decisions from major central banks meetings. Silver and palladium were also down.

Oil News

Crude oil fell on Tuesday as investors worry about demand declining after tightened restrictions are being imposed by governments in Europe and Asia due to the spread of the Omicron coronavirus variant and an increase in cases.

At the same time, the OPEC+ increased its world oil demand forecast for the first three months of 2022 and didn’t change its timeline for a return to pre-pandemic levels of oil consumption. They believe the Omicron variant’s impact will be short and mild.

Meanwhile, oil supply is expected to rise. According to a monthly forecast from the U.S. EIA, the oil output from the largest U.S. shale basin is expected to increase to record levels in January.

Bitcoin

Bitcoin steadied after experiencing a major drop due to expectations of central banks reducing their stimulus – the liquidity of which lifted the crypto markets. Other digital assets such as Ether and Litecoin also recorded losses. Bitcoin fell more than 30% from its $69,000 all-time high on November 10, but it is still up about 60% so far in 2021. It’s trading around $47,000 at the time of writing.

What to Watch out for this Week:

Tuesday
GB Unemployment Rate
GB Claimant Count Change

Wednesday
GB Inflation Rate YoY
China House Price Index YoY
China Industrial Production YoY