Thrilling Week! Analyst Reviews Crucial Data Will Determine Market Direction


The US dollar traded flat on Monday, at the start of a week full of market focus on Britain's budget, the European Central Bank meeting, US jobs data, and key political developments in China and the US.

The euro strengthened 0.13% to $1.08, sterling gained 0.28% to $1.2677 and the Japanese yen fluctuated around the closely watched 150 per US dollar level. The dollar eventually strengthened 0.20% to 150.43 yen. This left the US dollar index which measures the currency against six major currencies at 103.79.

"This will be a busy week for the market with 'significant data releases' in the US and Europe, which could trigger an increase in volatility from current very low levels," said Lee Hardman, senior currency analyst at MUFG.

In the United States, Federal Reserve Chairman Jerome Powell will testify before members of Parliament on Wednesday and Thursday, followed by US payroll data on Friday. Based on forecasts, a still-strong increase of 200,000 is expected after a jump of 353,000 in January.

Wages could be a bigger factor because Powell may be comfortable with the current market pricing for a rate cut from the Fed, if the wages data is stronger it could influence market expectations (for the Fed's policy),” said Hardman. In early 2024, the market expected a substantive rate cut earlier this year, but market players have since scaled back their expectations. Valuations in the derivatives market now reflect expectations that the Fed's first rate cut will be implemented as early as June, with three to four a reduction of 25 basis points this year.

Because expectations for other central banks, notably the European Central Bank and the Bank of England, have moved almost simultaneously, currency volatility is partly dependent on changing interest rate differentials.

Britain's budget will be announced on Wednesday, and Chancellor of the Exchequer Jeremy Hunt has tried to quell speculation about massive tax cuts ahead of the election. The European Central Bank (ECB) will meet on Thursday. Most ECB politicians have been cautious in indicating that they will cut interest rates soon.

The Swiss franc jumped briefly after February Swiss inflation was slightly higher than expected at 1.2% compared to a year earlier, though still lower than January's level and still within the Swiss National Bank's 0-2% target range. The Australian dollar eased slightly to $0.6524 with the traders await GDP data on Wednesday. Given Australia's close economic ties with China, the currency will also be affected by China's annual parliamentary meeting starting on Tuesday, where authorities will announce GDP targets and are expected to announce a modest economic stimulus plan.