FX markets opened steadily this week, with the Dollar showing no significant movement. The market appeared emboldened by the strong performance of equities towards the end of last week and unfazed by the slightly lower-than-expected growth target set by China. According to economists at ING, a Dutch multinational banking and financial services corporation, the Dollar is expected to remain range-bound.
Despite the fact that the Chinese growth target for 2023 came in lower than market expectations at 5.0% (5.5-6.0% was anticipated), the Dollar didn’t show any significant reaction. Equities, on the other hand, continue to perform well despite the significant rise in bond yields last week. This stability is providing support to pro-cyclical currencies and buoying the market.
To offer an insight into the week’s potential developments, ING economists forecasted that the USD/JPY 104.50 level would be a good entry point for a long position. The bank predicts that the global economic recovery should continue, primarily bolstered by the US, the extension of fiscal support to businesses, and progress in vaccinations in Europe, among others.
The US economy remains a bright spot, with new data indicating a healthy rebound from the COVID-19 recession. In February, the US retail sales climbed a solid 5.3% over the previous month. Moreover, the jobless claims figures are showing signs of improvement with the number of claims dropping to 710k, the lowest level we have seen since October 2020.
Despite these positive figures, the budget negotiations between President Biden and Senate Republicans remain unresolved. The Senate Republicans have expressed reservations concerning the high levels of funds the Democrats seek to allocate for COVID-19 stimulus packages. The package includes a $1.9 trillion COVID-19 relief and economic stimulus.
Furthermore, given that the US Treasury Secretary, Janet Yellen, has stated that interest rates will rise a little to keep the economy from overheating soon, this may make the Dollar less attractive than other major currencies.
This week, the GBP finds itself in the midst of several macroeconomic indicators, including the inflation data release, employment data, and the Bank of England rate review. Inflation data in the UK may come in lower than expected. The Bank of England’s outlook remains pro-growth, however, due to the progress in vaccination and the unwavering support of the fiscal policy, despite the uncertainty of the Brexit deal.
Additionally, the Bank of Japan will be announcing its interest rate decision and giving an assessment of the country’s economic outlook relevant to the issues it faces, including the pandemic and the impact of the Tokyo Olympic Games cancellation.
Furthermore, the COVID-19 pandemic continues to impact the French economy. The French government has decided to extend existing restrictive measures, and there are speculations of the closure of the border with Germany. These market events might affect the European currency’s value in the coming days.
Therefore, market trends and macroeconomic data within specific countries will continue to influence the FX markets in the upcoming days. ING predicts that the USD/JPY will continue to trade between the 104.00 and 105.50 bands, with the week mostly range-bound, unless influenced by any significant events.
