This week is full of notable events. The monetary policy announcements of the US, UK, and European central banks have passed without incident. The US FOMC hiked interest rates by 25bp, while the UK MPC and ECB hiked by 50bp each, in line with market expectations. Despite the nervous price movements, there seems to be no fundamental change in the downward trend of the dollar that has continued since the second half of last year.
However, each central bank has a different perception of inflation, the pace of interest rate hikes, and the economic outlook. In the United States, inflation is clearly decelerating, and the terminal rate is expected to be in the 5% range.
The UK has already raised interest rates 10 times in a row, and this 50bp hike seems to have matured considerably. A rapid slowdown in inflation is expected in the future, and there is a glimpse of the risk of overkilling the economy. As for the split among the policy members, the views were largely divided, with seven people leaving the rate unchanged by 50 bp and two people leaving the rate unchanged.
In Europe, it was clearly stated that the interest rate would be raised by 50 basis points in March as well. With so many participating countries, it is difficult to coordinate opinions. Spain’s core inflation unexpectedly surged this week, and signs of a slowdown across the euro area are still fragile. It is highly likely that there will be aggressive interest rate hikes for some time to come.
Wage increases are a point of concern in each country. In that sense, today’s US employment statistics are likely to focus on the degree of increase in average weekly wages. According to the latest market forecast, the average hourly wage is expected to increase by 0.3% from the previous month, which is the same number as the previous month, and is expected to slow down from the previous increase of 4.6% to 4.3% from the previous year. The US dollar is likely to continue to be under selling pressure as it is expected to support the deceleration of inflation in the US.
We believe that the flow of large USD selling will not change, but yesterday’s USD buyback after the ECB was unexpected. I thought that the top price would grow with this, but AUDUSD made a big loss cut. It was a painful loss cut just because I was confident.
Once again, we will pay attention to the direction of the USD after the US employment report at today.