The US Dollar (USD) showed some support after a weak start to March, influenced by the Federal Reserve’s cautious stance on rate cuts. Reports indicating potential exemptions from initial protectionist measures have slightly affected the dollar’s performance.
For the week ahead, the Conference Board’s consumer confidence survey is expected to be pivotal, with a forecast of 93, close to consensus. Additionally, the core PCE for February is projected to rise by 0.3% month-on-month, potentially signalling a mildly positive outlook for the dollar.
Russia Ukraine Peace Talks
Developments in the Russia-Ukraine peace talks may impact market sentiment, although recent improvements do not suggest an imminent ceasefire. Short-term fluctuations are anticipated, with the dollar possibly softening due to upcoming PMIs and consumer confidence data, before recovering towards the end of the week, potentially stabilising around 104.
The greenback has managed to find its footing after stumbling at the beginning of March, largely due to the Federal Reserve maintaining a watchful approach on monetary policy adjustments. Meanwhile, reports hinting that certain sectors may be spared from the initial wave of protectionist measures have added another layer of complexity, exerting some influence on sentiment.
Looking ahead, incoming data will play a role in shaping short-term movements. The Conference Board’s consumer confidence index is on track to land around 93, a figure that aligns well with analysts’ expectations. This will be one of the more closely watched indicators as it provides insight into household sentiment, and by extension, spending patterns. Alongside this, the Federal Reserve’s preferred inflation gauge – the core PCE price index – is forecast to increase by 0.3% month-on-month for February. If this reading meets expectations, it would reinforce a narrative of persistent inflationary pressures, which might temper arguments in favour of early rate cuts.
Beyond economic indicators, geopolitical factors remain in the background. Although there have been murmurs of progress in discussions regarding the Russia-Ukraine conflict, developments thus far do not indicate that a resolution is imminent. Any unexpected breakthrough – or setback – could shift risk sentiment abruptly, and currency markets would likely respond accordingly.
In the immediate term, market participants should prepare for some back-and-forth in the dollar’s trajectory. The currency may experience a temporary dip amid incoming PMI and confidence data, as assessments of economic resilience continue. However, by the latter part of the week, a rebound could be in play, with levels potentially gravitating closer to 104.
Inflation And Interest Rates
For those navigating the options and futures markets, the interplay between inflation trends and interest rate expectations remains at the forefront. If inflation creeps higher and policymakers opt to hold a firm stance on rates, that could lend further support in the medium term. However, a softer set of data points might trigger a reassessment, opening the door to short-lived repricing in rate-sensitive assets.
With volatility likely to linger, positioning strategies should account for shifting expectations around monetary policy while keeping an eye on external influences that may sway sentiment abruptly.
