On March 31, New York Fed President John Williams stated that current monetary policy is "in a good place," effectively balancing inflation and employment. He noted that the conflict in the Middle East could create a typical supply shock, potentially driving up inflation through rising energy and commodity prices while simultaneously restraining economic growth, with signs of this dynamic "already beginning to appear." Williams further emphasized that while overall inflation may rise in the coming months due to a significant increase in energy prices, some of this pressure could ease within the year if the conflict ends and oil prices decline. He projected U.S. economic growth at around 2.5% this year, with inflation possibly rising to 2.75% before falling back near the 2% target next year, alongside an expected increase in the unemployment rate.
Additionally, the summary of opinions from the Bank of Japan's policy board meeting earlier this month revealed a hawkish stance, with one member suggesting that stronger interest rate hikes than recent moves might be necessary in response to the Middle East conflict. According to the minutes released on Monday from the March 18-19 meeting, one of the nine board members indicated that "if there is no sign of a significant deterioration in the economic environment or a change in wage-setting attitudes among small firms, the bank will need to raise the policy rate without hesitation." This signal suggests the Bank of Japan is concerned about upside risks to inflation stemming from an escalation of Middle East tensions. As rising oil prices intensify inflationary pressures in the resource-scarce nation, traders now see about a 69% probability of a rate hike at the next policy decision on April 28.
Key data to watch today includes Germany's February retail sales month-on-month, the UK's final Q4 GDP year-on-year, Germany's March seasonally adjusted unemployment rate, the Eurozone's March harmonized CPI year-on-year, Canada's January monthly GDP, the U.S. March Chicago PMI, the U.S. March Conference Board Consumer Confidence Index, and U.S. February JOLTs job openings.
Gold / USD Gold edged higher yesterday with a slight daily gain, currently trading around $2,180. Lingering market risk aversion continues to support the precious metal, while comments from Fed officials tempering rate hike expectations also provided some underpinning. However, the ongoing strength of the U.S. dollar index has limited gold's upward momentum. Resistance is seen near $2,250 today, with support around $2,150.
USD / JPY The USD/JPY pair declined slightly yesterday, currently trading near 151.40. Profit-taking exerted some downward pressure, alongside concerns about potential further intervention by Japanese authorities in the currency market and rising expectations for a Bank of Japan rate hike. Furthermore, dovish remarks from Fed officials regarding the U.S. interest rate outlook added to the pair's weakness. Resistance is anticipated near 152.00 today, with support around 150.80.
USD / CAD USD/CAD advanced yesterday, hitting a 17-week high, with the pair currently trading near 1.3600. The primary driver remains the sustained climb in the U.S. dollar index, buoyed by Federal Reserve rate hike expectations and safe-haven demand. Additionally, recently weak Canadian economic data continues to support the pair. Nevertheless, rising crude oil prices have capped further gains. Resistance is eyed near 1.3650 today, with support located around 1.3550.
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