The US Securities and Exchange Commission (SEC) is holding a number of roundtables under the ominous banner “Spring Sprint Toward Crypto Clarity.” These meetings will cover how best to regulate crypto assets. This Friday serves as the kickoff for our inaugural roundtable. The agency is committed to addressing these important issues in the rapidly evolving crypto space. This effort comes in the midst of historic economic transformation. As we approach the March Federal Open Market Committee (FOMC) meeting, the US dollar has been stronger, and all eyes are glued to harbingers like the Conference Board’s consumer confidence index and new home sales.
Meanwhile, in the Eurozone, the composite Purchasing Managers’ Index (PMI) was unchanged in February. This was the result of an acceleration in manufacturing activity being countered by a decline in the services PMI. Analysts are predicting a strong 0.6% month-over-month rebound in February. In the US, the Cleveland Fed’s Nowcast model expects a modest move of 1 tick down in the headline Personal Consumption Expenditures (PCE) price index, falling from 2.5% to 2.4% YoY in February. The core PCE price index is expected to hold firm at 2.6% YoY.
Economic Indicators and Currency Movements
The US dollar index DXY + 0.66% has been on an upward slope since the March FOMC meeting. Fed Chair Jerome Powell downplayed the risk of a recession while maintaining caution over the inflation outlook, which has contributed to the dollar's strength. On Tuesday, keep an eye out for the Conference Board’s consumer confidence index. It will be joined by new home sales data, both providing critical information on the health of our economy.
In Europe, the Eurozone composite PMI remained unchanged in February. As the services sector saw a major dip, manufacturing gains faltered. February’s expected to be a modest 0.6% recovery according to analysts so let’s focus on that. Even so, the European Central Bank is alert to any signs that inflation might be getting too hot.
Earlier this week, the Cleveland Fed’s Nowcast model offered a dour inflation outlook for the US. Though headline PCE inflation seems to have come down somewhat, core inflation is still very sticky. Bank now anticipates the Consumer Price Index (CPI) to rise to 3.75% by Q3. That would suggest that another reading above 3.0% probably won’t shake up the markets too much.
Market Reactions and Predictive Trends
The possibility of additional interest rate cuts this year is becoming more popular among investors. Many are betting on an economic slowdown exceeding the Federal Reserve's projections, potentially leading to a third rate cut this year. This sentiment has wreaked havoc in every segment of the market, including precious metals.
Gold prices were under significant pressure on Friday. A stronger US dollar index and profit-taking caused the drop down near the $3,000 level per troy ounce. This movement of capital occurs on Quadruple Witching day. On this day, stock options, stock index futures, stock index options, and single stock futures all expire simultaneously, causing increased market volatility.
In Japan, tariffs are still influencing economic expectations. While the Bank of Japan is more cautious than ever, it so far has stopped short of signalling a timeline for the next round of events – rate hikes. This hesitancy is symptomatic of larger uncertainties inside of global economic conditions.
Upcoming Economic Data and Currency Performance
Turning to the broader economy, three main economic reports are out this week. On the macro front, Wednesday brings orders of durable goods for February. Finally, to end the week, on Thursday, we’ll get pending home sales and the third and final Q4 GDP estimate. All three of these indicators will be coming soon and are expected to dramatically affect market perceptions and currency valuations.
The British pound has had an impressive run this March, jumping nearly 3% against the US dollar. The next budget update in the spring could give an extra lift if new fiscal measures are introduced to kick-start the still-moribund economy.
In the meantime, the EUR/USD exchange rate stays steady. Applying the pegged exchange rate to narrow trading range close to 1.0850 within the modern trading times. This is indicative of a larger trend in the market as investors turn their attention to rapidly changing economic fundamentals around the globe.