The din in the global currency market is deafening with remarkable goings-on. The GBP/USD and AUD/USD pairs are soaring, while the USD/JPY pair is riding a wave of upward momentum. At the same time, various economic indicators, including inflation and personal consumption figures, are painting a complex picture for investors. The Cleveland Fed’s Nowcast model is forecasting no change in the headline PCE price index. At the same time, it forecasts a minuscule increase in the core PCE index. As markets brace for key economic reports, including the UK CPI and Australia's inflation figures, investors are weighing potential impacts on currency valuations.
GBPUSD and AUD/USD Show Upward Momentum
The GBPUSD currency pair just launched higher. It is finding good support a little below the mid-level of the Bollinger band and in the area of the 1.2885 support zone. This positive trend demonstrates an increasing optimism in the currency pair. Investors are intently focused on the economic backdrop and prevailing market conditions.
The AUD/USD currency pair is rising sharply. It’s now getting close to the short term simple moving averages (SMAs) pictured above around the key 0.6300 psychological level. Since mid-January, this spread has been in a free fall upward. This trend is both indicative of and contributing to positive economic outlooks here and abroad, and changing global trade dynamics.
Economic Indicators and Market Reactions
Based on the Cleveland Fed’s Nowcast model, that means we can expect the headline Personal Consumption Expenditures (PCE) price index to be flat. It is forecast to remain at 2.5% year-on-year in February. The core PCE price index that excludes volatile food and energy may have increased to 2.7% year-over-year. This is up from the prior rate of 2.6%. Investors dote on these inflationary gauges. They offer important clues about what’s going on with consumer prices and when future adjustments to monetary policy may be necessary.
In January, personal consumption registered a slight drop of 0.2% m/m. Analysts are projecting a 0.5% rebound for February. This net 90,000 new establishments may be a sign of a consumer spending rebound, further energizing general economic activity.
USD/JPY and Upcoming Inflation Reports
The USD/JPY pair is riding its second upward wave after retreating from the five-month low of 146.50. Traders are waiting keenly to see at which level bulls might face resistance as we near the short-term descending trend line. This level coincides with the psychologically important 150.00 level.
On Wednesday, don’t miss the frenzy across the pond as the UK releases its CPI. According to analysts’ forecasts, expect inflation to fall marginally from 3.0% to 2.9% y-o-y in February. The Bank of England’s target range of 1.0%-3.0% will be affirmed, as fully anticipated by the market.
Similarly, Australia’s inflation print is predicted to stay steady at 2.5% y/y in February for the third month in a row. Growing trade tensions are creating new worries over possible civil unrest in China. This creates enormous risks for Australia’s own domestic economy, given that China is Australia’s largest export market.