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The euro, the Swedish krona and the Swiss franc topped the G10 rankings last week. Two factors certainly contributed to this. In the first place, there was a feeling that the Russian invasion would enter a slightly less disastrous phase. Second, Biden announced that the U.S. will start selling oil from its strategic reserve on a large scale to try to curb energy inflation, which led to a pullback in oil prices. The sharp rise in global energy prices is a problem for the euro, given its dependence on oil and gas imports in Europe. Following the news from the US, the Norwegian krone was traded off en masse, but the scorching rally in emerging market currencies – the Latin American currency once again leading the way – continued despite lower oil prices.
There won't be many figures on the economy this week. Attention will be on central bank announcements, as both the Federal Reserve (Wednesday) and the ECB (Thursday) publish the minutes of their respective March meetings. We expect the Fed to confirm the continued tightening of policy, which markets have already priced in, by adopting a clear hawkish tone. The tone of the ECB's minutes is more difficult to predict. We expect that there will be a clear dichotomy between doves and hawks, and that hawks will gradually gain the upper hand, as relentless inflationary pressures are increasingly difficult to explain. The single currency should benefit from this. Below is the main currency in detail.
March's inflation report once again delivered a spectacular upside surprise. The headline figure of 7.5%, mainly due to the price spikes in Spain and Germany, exceeded already high expectations. The core figure rose slightly less sharply and remained at 3.0%, but this calm is partly due to the fact that house prices have little weight in this index. The lower oil price after Biden's announcement about Biden's strategic oil reserve is certainly good for the eurozone's battered terms of trade. This explains the rebound that the euro has shown in recent days. However, a stable upward trend in the single currency will require a clearer hawkish U-turn by the ECB and hawkish dominance of the internal discussion. We believe this will happen in the coming weeks and will begin after the publication of the March ECB minutes next Thursday.
The main news from the UK last week was the upward revision of the fourth quarter economic growth figures, but the markets completely ignored this retrospective information. Instead, the exchange rate of the British pound remained under pressure due to the attitude of the Bank of England, which is seen as 'dovish'. The coin lost ground against most of its counterparts last week. We're not getting a lot of numbers this week either. Attention will be on the speech by Huw Pill, the chief economist of the Bank of England (Thursday).
The U.S. labor market report was again strong. This confirms that there is a fully employment economy and that the labour shortages that exist in many sectors will not be solved in the short term. In our view, this means that inflationary pressures will continue to spread. All eyes are now on the March Fed minutes. These are expected to include new information on the reduction of the central bank's vast holdings of government bonds and mortgage bonds. The most important piece of information is the pace at which the Fed intends to reduce the volume of bonds on its balance sheet without reinvesting the proceeds. Any amount above $80 billion per month will be considered hawkish and could trigger a knee-jerk rally in the U.S. dollar.
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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
