- GBP/JPY gauges an intermediate cushion near 190.40 as the BoE sees no rush for rate cuts.
- UK’s high wage growth and service inflation keep the inflation outlook stubborn.
- Japan’s National CPI remains higher at 2% than expectations.
The GBP/JPY pair discovers a temporary cushion near 190.40 in Wednesday’s European session. The asset remains broadly upbeat as the Bank of England (BoE) is not ready for imminent rate cuts due to a stubborn inflation outlook.
BoE policymakers want to see more evidence to gain confidence that inflation will sustainably return to the 2% target to begin reducing interest rates.
On Tuesday, BoE Deputy Governor Dave Ramsden, who voted for holding interest rates at 5.25% in the last monetary policy meeting, said he wants to see how long inflation will remain persistent. Ramsden added the duration of inflation remaining persistent will determine how long interest rates will be maintained at 5.25%.
This week, the British Retail Consortium (BRC) reported that the annual shop price inflation retreated to 2.5% in February, the lowest since March 2022, which seems to offer some relief to households. However, strong wage growth and high service inflation continue to keep the outlook of consumer price inflation sticky.
The United Kingdom’s economic calendar is light this week. Therefore, the Pound Sterling will be guided by market expectations for rate cuts by the BoE.
Meanwhile, the Japanese Yen finds some buying interest as Japan’s inflation remains more stubborn than expectations in January. The annual National Consumer Price Index (CPI) rises by 2.0% against expectations of 1.8% but decelerates from December’s reading of 2.3%.
Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes the last Bank of England’s (BoE) move and its implications for the Pound Sterling (GBP).
Money should always and everywhere be scarce
The BoE is planning to get rid of the securities that it, like the other major central banks, accumulated after the Great Financial Crisis of 2008.
I am neither a money market expert nor a banking sector expert. Therefore, I cannot promise you that this plan will succeed. However, my idea of monetary theory tells me that money should always and everywhere be scarce – even in the interbank market. Otherwise, it smells strange to me. Even if things have been going well for almost 16 years.
Apart from all the other arguments for or against the Pound, I, therefore, believe that the monetary policy normalization planned by the BoE, which is unique in this sense, is a GBP-positive argument.
- AUD/USD meets with heavy supply following the release of the softer Australian CPI report.
- A strong pickup in the USD demand exerts additional pressure and contributes to the fall.
- Traders now look to the US Q4 GDP for some impetus ahead of the US PCE on Thursday.
The AUD/USD pair comes under intense selling pressure following the previous day's directionless price action and dives to a nearly two-week low during the first half of the European session. Spot prices slide back below the 0.6500 psychological mark in the last hour and seem vulnerable to weaken further amid broad-based US Dollar (USD) strength.
The initial market reaction to Tuesday's disappointing US Durable Goods Orders turns out to be short-lived amid expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. Furthermore, a turnaround in the global risk sentiment – as depicted by a pullback in the equity markets – benefits the Greenback's relative safe-haven status and drives flows away from the perceived riskier Aussie.
The Australian Dollar (AUD), on the other hand, is undermined by domestic consumer inflation figures, which held steady at a two-year low in January as against consensus estimates for an uptick. In fact, the Australian Bureau of Statistics (ABS) reported that the headline CPI rose by the 3.4% YoY rate during the reported month, matching the lowest reading since November 2021 touched in December.
Adding to this, the Core CPI, which excludes volatile items such as fuel, fresh food and holiday travel, eased from the 4.2% YoY rate seen in the previous month to 4.1% in January. The data fuelled speculations that price pressures could abate more rapidly than expected and reduce the possibility of another interest rate hike by the Reserve Bank of Australia (RBA), which, in turn, weighs heavily on the AUD.
Meanwhile, the flight to safety triggers a fresh leg down in the US Treasury bond yields and might hold back the USD bulls from placing aggressive bets. This could lend support to the AUD/USD pair ahead of the crucial US Personal Consumption Expenditure (PCE) Price Index on Thursday. In the meantime, traders on Wednesday will take cues from the prelim US Q4 GDP print and Fed speaks for some impetus.
- EUR/USD drifts lower for the second straight day amid resurgent USD demand.
- Hawkish Fed expectations and the cautious mood boost the safe-haven buck.
- Reduced bets for more aggressive ECB rate cuts could limit any further losses.
The EUR/USD pair comes under intense selling pressure on Wednesday and drops to a one-week low during the first half of the European session. Spot prices, however, show some resilience below the 1.0800 mark and rebound a few pips in the last hour, though any meaningful recovery seems elusive in the wake of a goodish pickup in the US Dollar (USD) demand. Investors now seem convinced that the Federal Reserve (Fed) will wait until the June policy meeting before cutting interest rates. This, along with a turnaround in the global risk sentiment, benefits the safe-haven Greenback.
That said, a fresh leg down in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets. This, along with reduced bets for a more rapid cut in borrowing costs by the European Central Bank (ECB), could lend support to the shared currency and limit the downside for the EUR/USD pair. Investors might also prefer to move to the sidelines ahead of the crucial inflation figures from the Eurozone and the United States (US). The flash CPI estimates from Germany, France and Spain are due for release on Thursday ahead of the US Personal Consumption Expenditures (PCE) Price Index.
This will be followed by the Eurozone inflation data on Friday, which will drive the shared currency, which will play a key role in driving the Euro and providing some impetus to the EUR/USD pair ahead of the ECB meeting on March 7. In the meantime, traders on Wednesday will take cues from the Prelim US Q4 GDP print, which, along with speeches by influential FOMC members, should contribute to producing short-term opportunities around the EUR/USD pair.
Daily digest market movers: Bears seize intraday control amid strong pickup in the USD demand
- The Federal Reserve's hawkish outlook on interest rates, along with the cautious market mood, boosts the safe-haven US Dollar and drags the EUR/USD pair lower for the second successive day on Wednesday.
- Fed Governor Michelle Bowman said on Tuesday that she was in no rush to cut interest rates and that the slower-than-expected progress on inflation has left policymakers cautious about monetary policy stance. This reaffirms bets that the US central bank will wait until June before cutting rates and tempers investors' appetite for riskier assets ahead of the US Personal Consumption Expenditure Price Index on Thursday.
- Meanwhile, the looming US government shutdown and Tuesday's disappointing release of US Durable Goods Orders do little to influence the USD uptick, though retreating US Treasury bond yields might cap gains.
- US President Joe Biden urged Congress leaders to move quickly and emphasized the necessity of finding a solution to avert a detrimental government shutdown as a legislative logjam showed no signs of abating.
- The US Census Bureau reported that orders for long-lasting US manufactured goods registered a steep fall of 6.1% in January, the most in nearly four years and worse than the 4.5% decline anticipated.
- Separately, the Conference Board's Consumer Sentiment Index fell to 106.7 for February after three straight months of gains amid anxiety over potential recession, despite declining inflation expectations.
- Furthermore, the Richmond Fed's Manufacturing Index recorded the fourth successive month of a negative reading, though it improved to -5 in February as compared to -15 in the previous month.
- Traders have scaled back their bets for a rapid reduction in borrowing costs by the European Central Bank and now expect less than 100 bps of rate cuts this year, down from around 150 bps at the start of February.
- The market focus remains on the country-level consumer inflation data from Germany, France and Spain, to be published on Thursday. These data will be followed by the Eurozone region-wide flash CPI print on Friday.
Technical analysis: Break below the 1.0785 horizontal support could pave the way for deeper losses
From a technical perspective, the recent failure ahead of the 1.0900 mark and the subsequent slide below the 200-day Simple Moving Average (SMA) could be seen as a fresh trigger for bearish traders. That said, oscillators on the daily chart are yet to confirm the negative outlook and warrant some caution before positioning for any further losses. Hence, any further downfall is more likely to find decent support near the 1.0785 horizontal zone. The said area should act as a key pivotal point, which if broken decisively could make the EUR/USD pair vulnerable to accelerate the fall back towards retesting sub-1.0700 levels, or a three-month low touched on February 14.
On the flip side, the 1.0850 region seems to act as an immediate resistance, above which the EUR/USD pair could make a fresh attempt to conquer the 1.0900 round figure. Some follow-through buying should pave the way for a further near-term appreciating move towards reclaiming the 1.1000 psychological mark for the first time since January 11.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the US Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
The Australian Dollar (AUD) is under the gun after below forecast Aussie Consumer Price Index (CPI) data. Economists at Société Générale analyze AUD/USD outlook.
Australia’s CPI steady at 3.4% in January, core eases to 4.1%
The RBA will draw comfort from the January CPI data but will not declare victory.
Inflation stagnated at 3.4% instead of accelerating again, and core slowed to 4.1%, the lowest in two years. Progress is glacial but the central bank can be confident in the base case playing out and inflation will return to the target range of 2-3% in 2025 without the need for additional tightening.
For AUD/USD, the chart does not look great and price action is reminiscent of early February when the successful break above the 200-DMA proved short-lived. Support must hold at 0.6480 to avoid a deeper pullback.
- India’s Nifty and Sensex lost 1.0% on Wednesday after opening with modest gains.
- Nifty and Sensex were undermined by steep losses in the auto sector stocks.
- Wednesday’s US GDP revision eyed ahead of Thursday’s US PCE inflation, India’s Q3 GDP data.
The Sensex 30 and Nifty 50, India’s key benchmark indices, ended Wednesday with sizeable losses after opening marginally higher.
Global markets turned cautious, in the face of a renewed downside in Chinese stocks and nervousness in the run-up to a fresh batch of US economic data.
Indian traders remained on edge ahead of India’s third-quarter Gross Domestic Product (GDP) data and the expiry of monthly derivatives contracts due later this week.
The National Stock Exchange (NSE) Nifty 50 and the Bombay Stock Exchange (BSE) Sensex 30 lost about 1.10% on the day to settle at 21,951.15 and 72,304.88 respectively.
Stock market news
- The top gainers on Nifty included Infosys, TCS, Bharti Airtel and Hindustan Unilever. Meanwhile, the main laggards were Apollo Hospital, Eicher Motors, Bajaj Auto, Powergrid and Maruti.
- Shares of Vodafone Idea tumbled roughly 14% on Wednesday after the company's board decided to raise around Rs 45,000 crore through a combination of equity and debt for rolling out the 4G network.
- Patanjali Foods shares tanked 5% after the Supreme Court issued a contempt notice to Patanjali Ayurved’s Baba Ramdev and Acharya Balakrishna for publishing advertisements of products in violation of the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954.
- The NSE's Index Maintenance Sub-Committee is scheduled to meet on Wednesday after market hours to review the constituents of various indices of the Nifty.
- Reliance Capital is set to be delisted from the bourses following its acquisition by the Hinduja Group entity.
- Foreign Institutional Investors (FIIs) offloaded equities worth INR1,509.16 crore on Tuesday, according to exchange data.
- The third term of the Narendra Modi government will see transformative reforms in sectors such as digital infrastructure, space, artificial intelligence, specialized warehousing, agriculture and tourism, India’s Finance Minister Nirmala Sitharaman said on Tuesday.
- The US stock markets closed mixed on Tuesday, as markets weighed a 6.1% slump in the US Durable Goods Orders data and a dip in the CB Consumer Confidence index.
- Wednesday’s US GDP revision will be closely eyed before the key US PCE inflation data and India’s Gross Domestic Product (GDP) data due on Thursday.
- Markets are currently pricing in just about a 20% chance that the US Federal Reserve (Fed) could begin easing rates in May, much lower than an over 90% chance a month ago, according to the CME FedWatch Tool. For the June meeting, the probability for a rate cut now stands at about 60%, down from 70% seen a few days ago.
Nifty 50 FAQs
What is the Nifty 50?
The Nifty 50, or simply Nifty, is the most commonly followed stock index in India. It was launched in 1996 by the National Stock Exchange of India (NSE). It plots the weighted average share price of 50 of the largest Indian corporations, offering investors comprehensive exposure to 13 sectors of the economy. Each corporation's weighting is based on its “free-float capitalization”, or the value of all its shares readily available for trading.
What factors drive the Nifty 50?
The Nifty is a composite so its value is dependent on the performance of the companies that make up the index, as revealed in their quarterly and annual results. Another factor is government policies, such as when in 2016 the government decided to demonetize 500 and 1000 Rupee banknotes. This led to a temporary cash shortage which negatively impacted the Nifty. The level of interest rates set by the Reserve Bank of India is a further factor as it determines the cost of borrowing. Climate change, pandemics and natural disasters are also drivers.
What are the key milestones for the Nifty 50?
The Nifty 50 was launched on April 22, 1996 at a base level of 1,000. Its highest recorded level to date is 22,097 achieved on January 15, 2024 (this is being written in Feb 2024). The index first closed above the 10,000 level on October 17, 2017. The Nifty recorded its biggest daily decline on March 23, 2020 during the Covid pandemic, when it fell 1,125 points or 12.37%. The Nifty’s biggest gain in a single day occurred on May 18, 2009, when it rose 651 points after the results of the Indian elections.
What are some of the major companies in the Nifty 50?
Major corporations in the Nifty 50 include HDFC Bank, Reliance Industries, ICICI Bank, Tata Consultancy Services, Larsen and Toubro, ITC Ltd, Housing Development Finance Corporation Ltd and Kotak Mahendra Bank.