Sun, May 19, 2024

USD: USD Weekly Outlook: Potential Buying Opportunity Amid Weakness

US CPI data for the month of February is expected  as previous month data. Personal consumption expenditure for the month of January came at higher than expected. So This CPI data will save US Dollar from down this week if came at higher reading.

US Economy Holds Strong Amidst Downward Inflation Trend

The resilience of the US economy, coupled with persistent but declining inflation and a robust labor market, continues to shape the economic landscape.

This sentiment is underscored by the FedWatch Tool, operated by CME Group, which reveals a notable increase in the likelihood of a 25 basis points (bps) decrease in the Fed Funds Target Range (FFTR) in June. The probability has risen to almost 60%, up from around 40% just a month earlier.

Despite discussions around a “soft landing” for the US economy and a cautious stance on domestic inflation, particularly core consumer prices, Federal Reserve policymakers, including Chairman Jerome Powell, have maintained a hawkish tone. FOMC Governor Michelle Bowman emphasized that, while further tightening is not currently on the agenda, the US economy hasn’t reached a stage where interest rate cuts should be considered. The outlook suggests a potential decline in inflation and eventual rate reductions, but the prospect of implementing tighter monetary policy is not entirely dismissed.

Turning attention back to inflation, recent figures from the Personal Consumption Expenditures (PCE) show an increase in January, aligning with trends observed in the Consumer Price Index (CPI) and Producer Prices (PPI).

EURUSD is moving in Ascending channel and market has reached higher low area of the channel

EURUSD is moving in Ascending channel and market has reached higher low area of the channel

In a broader context, when comparing central banks and inflation dynamics among G10 countries (excluding the Bank of Japan), a parallel emerges between the Federal Reserve and its counterparts, such as the European Central Bank (ECB) and the Bank of England (BoE). Notably, both the ECB and BoE are expected to postpone policy rate cuts until after the summer period.

ECB Governing Council member Madis muller said ECB will not scale back asset purchases until March 2023 until ultra loose monetary policy seems in the market.

As the focus shifts to potential risks, the looming US CPI data for February holds significance. The past week in the US featured a mix of economic indicators, including a positive final S&P Global Services PMI and a slowdown in the ISM Services PMI. In the labor market, a weaker-than-expected ADP report was offset by stronger JOLTs Job Openings and robust job creation in the Nonfarm Payrolls report for February. Despite signs of wage inflation cooling, the upcoming release of US inflation figures measured by the CPI will be closely watched.

JPY: Japan’s Q4 GDP Revision Expected to Prevent Recession: Reuters Poll

Japan’s Q4 GDP is expected to come at -0.10% from -0.70% in Q3. Companies are promoting more growth towards doing more productions  and exports. The Capital expenditure is increased to 2.5% and the Private consumption contributing  60%  of Japan’s economy, this reading will give way for the Bank of Japan to end negative rates in March month meeting. Fears of recession will be avoided if Q4 GDP data came at expected reading on Monday.

Japan Q1 GDP report of 1.2 expected in QoQ versus 1.3

Japan stands at 4th place behind Germany in the fears of recession.

Revised Q4 GDP Data in Japan Likely to Avert Recession, Reveals Reuters Poll

According to a Reuters poll on Friday, revised data for Japan’s fourth-quarter gross domestic product is expected to indicate that the economy avoided a technical recession, thanks to stronger-than-expected spending on plants and equipment by companies. The October-December GDP is projected to be revised up, showing an annualized expansion of 1.1%, as per the median forecast of 21 economists in the poll. The preliminary figures released on February 15 had initially suggested an unexpected fall of 0.4%, marking the second consecutive quarter of contraction and meeting the definition of a technical recession for Japan. Atsushi Takeda, chief economist at Itochu Research Institute, noted, “Fears of entering a recession have disappeared.” The potential evidence of economic growth could provide the Bank of Japan with confidence to end negative interest rates, possibly as early as this month, paving the way for Japan’s first rate hike since 2007. The central bank is scheduled to meet for a two-day policy-setting meeting on March 18-19. Capital expenditure is anticipated to have risen by 2.5% in the fourth quarter, a significant improvement from the initial reading of a 0.1% decline. However, private consumption, constituting about 60% of Japan’s economy, is expected to show a similarly weak reading in the revised data after a preliminary 0.2% drop.

EURJPY has broken Ascending channel in downside

EURJPY has broken Ascending channel in downside

Saisuke Sakai, senior economist at Mizuho Research and Technologies, commented that achieving a virtuous cycle between wage increase, inflation, and consumer spending remains challenging, indicating that Japan may experience “low economic growth under inflation.” The government is set to release the revised October-December data on Monday at 08:50 a.m.

GBP: UK Economy Poised for ‘Unexpectedly Strong’ Performance in 2024

According to Steven Bell chief economist, UK GDP will grow 0.80% this year and 1.9% percent in 2025. Inflation will eased to 2% this year. This reading is possible due to Energy cap prices decreased to 1.5 £ from 2.5£.

Chief Economist Steven Bell Predicts Strong Growth for UK Economy in 2024

UK GDP data printed at YoY at 15.2 versus 14.9 expected Q2 GDP data expanded at 22.2 versus 6.1 previous printed

According to Steven Bell, the chief economist at Columbia Threadneedle, the UK economy is poised to be among the world’s fastest-growing economies in the current year, fueled by falling inflation and increasing real incomes. Bell made these remarks in response to the latest GDP forecasts from the Office for Budget Responsibility, which projects a 0.8% growth in GDP for the current year and a subsequent increase to 1.9% in the following year.

While these forecasts represent significant upward revisions compared to previous estimates, Bell contends that the numbers are overly pessimistic. He anticipates a “significant change in atmosphere” regarding how the UK is perceived both domestically and internationally. Bell previously forecasted the 0.8% growth number in a webinar last week, emphasizing that the public might be surprised to learn that inflation is projected to be 2%. He clarifies that this is the headline rate, with the fall largely attributed to the energy price cap decreasing from £2,500 to £1,500, while wage growth remains robust.

Bell highlights two crucial factors supporting his view of a potential shift in economic sentiment. Firstly, if wage growth continues to be strong alongside a decline in the headline inflation rate, the real value of people’s income would increase. Secondly, the unusual trend of an increased savings rate during a period of high inflation could provide consumers with confidence to spend more of their income as energy bills decrease.

Bell acknowledges the significant increase in the UK population in recent years, cautioning that while GDP is expected to rise, GDP per capita (per head of population) is forecasted to contract. He emphasizes that this implies every extra unit of economic growth is distributed among a larger number of people, potentially mitigating its significant impact on the population unless GDP growth per head of population also increases.

Regarding the economic impact of the 2 percentage point cut in national insurance (NI), Bell believes it will be stimulative for the economy, even when considering the freezing of tax bands. He explains that cutting national insurance, primarily paid by workers, represents stimulus, particularly for the younger demographic, which is more likely to spend their extra income. Additionally, the OBR assumes that a national insurance cut will encourage more people back to work, further contributing to economic stimulation.

GBPUSD has broken Descending channel in upside

GBPUSD has broken Descending channel in upside

However, not all experts share Bell’s optimistic outlook. Konstantinos Venetis, a senior economist at Global Data TS Lombard, is more skeptical, expressing concerns that the tax cuts in the Budget may lead to lower government infrastructure spending, capping the potential for robust economic growth. Hetal Metha, head of economic research at St James Place, adopts a cautious stance, pointing out that if the OBR growth numbers prove inaccurate, there might be limited headroom for the chancellor to implement additional measures to stimulate growth. Robert Alster, chief investment officer at Close Brothers Asset Management, anticipates the measures announced in the Budget will modestly boost GDP growth, albeit with diminished headroom against the government’s fiscal rules. The OBR estimates a meager reduction of public sector net debt by -0.3% of GDP in the final year, shrinking headroom by £4 billion. Nevertheless, Alster notes that these assumptions assume expenditure cuts in the next parliament, and with an election on the horizon, the current chancellor’s priorities may shift, leaving the evaluation and consideration of these changes to the next government.

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