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It’s tough to be doctrinaire about trade policies in the real world. I’m a champion of free trade, which allows consumers and producers alike to enjoy the greatest choice and flexibility to satisfy their trading objectives. Still, free trade doesn’t necessarily work for everyone in the short run. In dynamic markets, actors come and go and changing relationships foster a lack of permanence. More concretely, once-thought to be good-paying jobs or careers may fall by the wayside as prevailing trading arrangements are disrupted and replaced. We’ve certainly seen these effects over the last several decades as substantial numbers of US manufacturing jobs have been outsourced to foreign competitors. This seeming downside notwithstanding, I don’t think the issue of job losses is necessarily overriding. Job losses from industries migrating across borders can be devastating to households and communities, as well; but these effects can – and should – be mitigated by instituting well-targeted safety net programs intended for affected workers, to facilitate their transitions to other employment opportunities. The alternative of trying to institute protectionist policies such as trading bans or imposing tariffs seems shortsighted and costly to the broader public who would end up bearing higher costs for goods and… Read More »Peace, war, and free trade

EUR/USD – 1.1086 Euro's strong rebound from last Monday's fresh 22-month bottom at 1.0807 signals erratic decline from 1.1495 (February) has made a low there and yesterday's break of last Thursday's 1.1120 top to a 12-day peak at 1.1137 in New York on broad-based usd's weakness signals gain to 1.1145/55 is envisaged but 1.1187 should hold. On the downside, only a daily close below Wednesday's 1.1009 trough signals temporary top is made and would risk weakness to 1.0951/55 on next Monday. Data to be released on Friday: New Zealand GDP, Japan nationwide CPI, BOJ interest rate decision, tertiary industry activity. Italy trade balance, EU labour costs, trade balance, Canada retail sales, new housing price index, U.S. leading index change and existing home sales.  

AUD/USD Current Price: 0.7372 Upbeat Australian employment figures boosted demand for the commodity-linked currency. Wall Street changed course after a soft start to the day, providing support to AUD. AUD/USD could extend its advance to 0.7555 once above the 0.7400 threshold. The Australian Dollar was among the best performers on Thursday, advancing against its American rival to 0.7391, holding nearby at the beginning of the Asian session. The commodity-linked currency got boosted by Australian employment data released at the beginning of the day, which resulted much better than anticipated. The country managed to add 121.9K full-time jobs, and while the number of part-time positions was down by 44.5K, the final total resulted at 77.4K, more than doubling the 37K expected. The Unemployment Rate contracted to 4%, while the Participation Rate was up to 66.4%. A substantial recovery in gold prices provided additional support to the aussie, as the bright metal recovered towards $1,950 a troy ounce. Additionally, US indexes managed to shrug off the sour tone of their overseas counterparts and posted modest gains, underpinning AUD/USD. Wall Street trimmed early losses following news that international bondholders received Russian bond coupon payments due March 16th in dollars. Australia will not publish… Read More »AUD/USD Forecast: Boosted by gold and equities’ gains

Summary A broad-based increase in almost every category of manufacturing output despite only a slight improvement in supply chain dynamics offers a peek at the potential boom in American manufacturing if the bottlenecks in global supply lines could be cleared. The impact of Russia's invasion of Ukraine, while mostly not reflected in this February report, could worsen supply problems, but our analysis suggests only minimal direct exposure for manufacturing. Manufacturing getting back on it's feet U.S. industrial production increased 0.5% in February (chart) as incremental improvement in supply chains gave businesses (mostly manufacturers) the wherewithal to start chipping away at backlogged orders. Manufacturing output rose 1.2% in February, the largest single-month increase since October. Remarkably, this happened despite a 3.5% drop in motor vehicles and parts production. It was the third straight monthly decline for this industry, which has become synonymous with the supply chain crisis. Other manufacturing categories are seeing some improvement–or were seeing improvement in February (see the section below for potential war impact.) Durable goods industries like primary and fabricated metals as well as nonmetallic mineral products and wood products all posted monthly gains of 2% or higher in the month. Every category within non-durable industries was… Read More »A glimpse of what happens when US factories get the materials they need

The Bank of England (BOE) is set to hike rates by another 25 bps on Thursday. BOE in a dilemma amid Ukraine crisis-led uncertainty, growth concerns and raging inflation. Focus on whether BOE will deliver a dovish or hawkish rate hike in March. The Bank of England (BOE) is eyeing a hat-trick, with the third straight 25 basis points (bps) rate hike at its March monetary policy meeting this Thursday. Russia’s invasion of Ukraine has thrown the central bank in a dilemma as it attempts to combat inflationary pressures while maintaining economic growth. BOE caught between a rock and a hard place The BOE is widely expected to raise the benchmark interest rate by 25 bps from 0.50% to 0.75% in its March monetary policy meeting, marking a lift-off for a third consecutive meeting. It’s not a ‘Super Thursday’, as there is no Governor Andrew Bailey’s press conference, leaving markets focussed on the voting composition for a rate hike as well as Bailey and Co.’s statement on the policy outlook. The economic forecasts will be of little relevance as they were prepared before Russia invaded Ukraine. In its February meeting, the British central bank unanimously increased rates by 25 bps… Read More »BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act

GBP/USD jumped back above mid-1.3100s on Wednesday amid a broad-based USD weakness. The risk-on mood undermined the safe-haven buck, while the hawkish Fed failed to impress bulls. Odds of a 50-bps BoE rate hike benefitted sterling and remained supportive of the movement. The GBP/USD pair built on the previous day's modest bounce from the 1.3000 psychological mark, or the lowest level since November 2020 and gained strong follow-through traction on Wednesday. The momentum pushed spot prices back above mid-1.3100s and was sponsored by a broad-based US dollar weakness. Signs of progress in the Russia-Ukraine ceasefire talks remained supportive of the optimistic mood in the markets. In fact, Russian Foreign Minister Sergey Lavrov said that there were hopes for compromises and some formulations of agreements with Ukraine are close to being agreed. Apart from this, Chinese officials promised to support economic growth and capital markets, which further boosted investors' confidence and triggered a risk-on rally. This, in turn, drove flows away from traditional safe-haven assets and weighed on the greenback. On the economic data front, the US Retail Sales showed a plunge in consumer spending and decelerated sharply from the previous month's surge of 4.9% to record a modest 0.3% growth… Read More »GBP/USD Forecast: More hawkish BoE should pave the way for additional gains

Fed hikes base rate 0.25% as expected, first increase since December 2018. Projections suggest an increase at each of the six remaining 2022 meetings. US economic growth estimate for 2022 reduced to 2.8% from 4.0%, inflation rises to 4.3% from 2.6%. Equities, US Treasury rates rise, dollar falls on retreating Ukraine safety trade. The Federal Reserve raised its base rate for the first time in three years marking the official end of the extraordinary policy response to the Covid pandemic. This came after two years of a zero-rate program, where Treasury yields reached record lows,  The Federal Open Market Committee (FOMC) voted to increase the target range for the fed funds rate to 0.25%-0.5%. The governors said they expected to begin reducing the bank’s $9 trillion balance sheet at a coming meeting. The vote was 8 to 1 with James Bullard, President of the St Louis Fed backing a 0.5% increase.  Federal Reserve Chair Jerome Powell observed in his press conference that the plans for the balance sheet were well advanced and the start could come as soon as the next FOMC meeting in May.  In addition to today’s increase, the bank’s Projection Materials posited six more rate increases this year with an median estimate for a 1.9% base… Read More »Federal Reserve hikes 0.25%, cautious on balance sheet and economic growth

Australian policymakers are shifting the focus from wage growth to inflation. Developments around the Russian-Ukrainian crisis will likely set the market’s tone. AUD/USD is technically bullish and could extend its recovery beyond 0.7300. Australia will release its February employment report early on Thursday and is expected to announce it has added 37K new job positions in the month. The Unemployment rate is foreseen down to 4.1% from 4.2% in January, while the Participation Rate is expected to have increased from 66.2% to 66.3%. The country reports wage growth on a quarterly basis, and according to the latest available data, the Wage Price Index was up 0.7% QoQ in the last quarter of 2021 and by 2.3% over the year, matching the pre-pandemic annual growth. The encouraging reading, however, fell short of reaching the 3% target that policymakers believe would be enough to trigger a rate hike. RBA concerned about inflation The Reserve Bank of Australia has been leaning towards a more hawkish stance, however, and wage growth is slowly losing its relevance in terms of monetary policy. The central bank has maintained its patient stance in its early March meeting – although adding that inflationary pressures may rise amid surging… Read More »Australian Employment Preview: Upbeat figures to fuel the optimism-related rally

EUR/USD extended its sideways consolidative price move and remained confined in a range. The Ukraine crisis, hawkish Fed expectations underpinned the USD and acted as a headwind. Investors also seemed reluctant and preferred to wait for the outcome of the FOMC meeting. The EUR/USD pair edged higher on Tuesday and moved away from the weekly low touched the previous day, though the uptick lacked bullish conviction. Despite the fact that several rounds of peace talks between Russia and Ukraine have failed to deliver a breakthrough, investors remain hopeful about a possible diplomatic solution to end the war. The optimism was evident from the risk-on impulse in the financial markets, which prompted some intraday selling around the safe-haven US dollar and extended support to the major. That said, Russian forces have stepped up their aggression in Ukraine and intensified bombardment of Ukrainian cities. Given its geographical proximity, worries that the European economy would suffer the most from the spillover effects of the Ukraine crisis acted as a headwind for the shared currency. This was reinforced by the German ZEW Economic Sentiment Index, which deteriorated sharply to -39.3 for March from 54.3 in the previous month. Apart from this, hawkish Fed expectations… Read More »EUR/USD Analysis: Traders seem non-committed amid Ukraine crisis, ahead of FOMC

Fed to kickstart policy normalization with a 25 bps hike in March. Gold has been suffering heavy losses this week amid surging US T-bond yields. XAU/USD is likely to remain under bearish pressure unless Fed adopts a dovish policy outlook. Gold came under strong selling pressure at the start of the week and erased the majority of the gains it registered since the beginning of the Russia-Ukraine war. Heightened optimism for a peace agreement and rising US Treasury bond yields ahead of the US Federal Reserve’s policy announcements have weighed heavily on the yellow metal, dragging it to its lowest level in more than ten days. The Fed is widely expected to hike its policy rate by 25 basis points at the March policy meeting. Markets have been pricing that move since the beginning of the year. Hence, the Fed’s rate outlook, which will be revealed in the updated Summary of Economic Projections, and Chairman Jerome Powell’s tone on war-related uncertainty should be the thing that triggers a significant market reaction. December’s dot plot revealed that the Fed was expecting the Core Personal Consumption Expenditures (PCE) price index to average 2.7% in 2022, up from 2.3% in the previous forecast.… Read More »Fed March Preview: Gold needs a dovish Fed to regain traction