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| Donald Trump |
Asian
stocks were mostly mixed during early trading amid market anxiety, while
European equities are currently following the lead from Asia. Trade war fears
are lingering in the atmosphere and with political uncertainty in Washington
still dominating headlines, stocks could remain under pressure ahead of the
highly-anticipated Federal Reserve meeting this week.
Will Powell
elevate the Dollar?
The
main risk event for the Dollar this week will be the two-day Federal Open
Market Committee monetary policy meeting, which is expected to conclude with
the central bank raising US interest rates.
With
markets heavily pricing in a US rate increase this month, the decision might
not have a significant impact on the Dollar. Investors will instead be expected
to closely scrutinize the statement for fresh insight into how many times the
Fed will raise interest rates in 2018.
Jerome
Powell’s optimism over the US economy has encouraged further speculation that
the Fed might raise interest rates four times this year. Investors will be
paying attention to see if Powell maintains a hawkish stance during his first
press conference as Fed Chair. They will
also be looking for further indications regarding the potential of four US
interest rate increases this year and this would be seen as encouragement for
reigniting trader demand for the USD.
Expectations
of higher US interest rates are considered as the main catalyst to improve
Dollar demand. Political instability in Washington and concerns about Trump’s
trade policies negatively impacting the US economy, are seen as the major risks
for Dollar demand.
The
Dollar is still being driven by conflicting fundamental themes, and there is
room for volatility in the Greenback this week.
UK inflation and
BoE meeting in focus
This
week is a potential busy one for the British Pound. Investors will be tussling
with a variety of different economic releases, including inflation, jobs data,
retail sales and a Bank of England policy meeting.
Inflation
data for February is expected to edge slightly lower which could pressure the
Pound. A decline in inflation pressure would be seen as a threat to the Bank of
England possibly raising UK interest rates later this year.
The
Bank of England is widely expected to leave interest rates unchanged this
month. Attention will be directed to the language of the accompanying
statement, in case the wording provides any clues towards the potential timings
of a change in UK interest rates.
Sterling
not only remains highly sensitive to monetary policy speculation but also to
ongoing Brexit developments. Any fresh signs of the Brexit negotiations moving
in the right direction could push the British Pound higher.
Gold depressed
ahead of FOMC
Gold
extended losses on Monday with prices dipping below $1310 as the Dollar
remained buoyed by expectations of an interest rate hike by the Fed this week.
Although
fears of a trade war and US political uncertainty have stimulated appetite for
safe-haven assets, price action suggests that Gold remains pressured due to speculation
of higher US interest rates. Taking a look at the technical picture, Gold is
under increasing pressure on the daily charts. Prices are trading below the
daily 50 SMA while the MACD has crossed to the downside. Sustained weakness
under $1314 could encourage a decline towards the psychological $1300 level.
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