This week's focus remained on US inflation as the USD continues to find a base maintaining buyer demand. The Fed testimony on day two was a highlight this week, and Fed Powell took a grilling from senators over high inflation, as well as the Fed’s current monetary policy. Powell reiterated the view that higher inflation looked to be transitory, but he acknowledged that price pressures were well above the central bank’s target.
Inflation and employment growth are both important factors to when the Fed will tighten the current easy monetary policy. “We’ve said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last December,” Powell said Thursday. “We’re in active consideration of that now.”
Rate increases look to be forming a floor for the USD and could be a reason there’s lower short interest. Adding to inflationary worries was last Friday’s better than expected US retail sales data. The figures were strong, retail sales increasing to 0.6%, well above the -0.4% expected and the previous -1.3% figure. This goes back to the price pressures, the PPI another factor as it came in above expectations last week, hitting 1.0%. With government spending and now price pressures expanding, could this dial-up earlier rate rise expectations?
The USDCAD and USDCHF posted solid weeks. Risk majors declined with the AUD and EUR both hitting new weekly lows while the GBP spent most of the week range-bound. The Bank of England was accused of being addicted to printing money late last week by its peers. Inflation is also an issue in the UK, and the focus remains around when the central bank could start tapering its current bond-buying. The head of the BoE commented that he won’t be rushed into rate rise decisions.
Staying with rates, Westpac sees a possible 3x 25 point rate rises from the RBNZ in 2021. NZ CPI surprised this week, hitting 1.3%, well above the 0.7% expected.
Melbourne is back in another lockdown, has this affected Gold?
Delta Covid variant continued to develop last week, with infection rates continuing to skyrocket. Australia saw a second major city move back into lockdown. Is this the factor holding gold up? Gold ignored the USD last week, continuing to trade above the 1820 level. Oil was not as favored as it moved lower. Chinese GDP missed the mark but still came in at 7.9%
U.S. indexes bucked off the Fed as the Nasdaq and SP500 hit new records. The Nasdaq stubbled off highs on Thursday. European indexes finished mainly lower last week, as did the Nikkei.
This week, the European Central Bank’s monetary policy meeting could be seen as the critical event of the week. The focus will be on the ECB monetary policy and its own stimulus program. With the UK talking reductions, could we see anything like this from the ECB? Flash data rounds out the week. German services and manufacturing PMI data the high impact highlighted. But we also have EU, French, UK, and US data due.
US stocks indexes remain a focus, with prices remaining around all-time highs. Has inflation been discounted? It’s a hot topic, but for now, buyers seem to be liking the temporary comments and the message that the stimulus will continue until otherwise.
Lastly, Bitcoin might not be all over the headline atm, but we are keeping a close eye on the weekly chart as the price continues to test support seen from 31,700 to 32,000. If a new move lower set off, could this be 2018 all over again?
Disclaimer
This information has been prepared for information only and does not constitute an offer or commitment. This information does not constitute investment advice as defined by the rules of the FCA.
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