[Market Review].
The Fed’s firm dovish stance. At 2:00 this morning, the much-anticipated Federal Reserve interest rate resolution was announced. The Fed left the benchmark interest rate unchanged at 0%-0.25%, and the dot plot is expected to keep rates at current levels until 2023, and maintain the current pace of asset purchases until substantial progress is made toward full employment and price stability goals. In addition, the Fed raised its GDP growth expectations for the 2021-2022 biennium and lowered its GDP growth expectations for 2023. In terms of debt purchase guidance, the Fed FOMC statement showed that it will continue to increase its holdings of at least $80 billion of Treasuries each month, as well as at least $40 billion of Home mortgage-backed securities. Fed Chairman Jerome Powell stressed that it is not the Time to start discussing tapering the size of bond purchases. It is not difficult to see that the Fed’s attitude is still dovish. As a result, the dollar index came under pressure and fell below the 91.5 mark.
Gold broke strongly through $1750. Gold, on the other hand, continued to move higher during the interest rate resolution announcement, once rising above $1,750 an ounce, pulling up nearly $30 from the intra-day low, but narrowed its gains after Powell’s speech, falling back below $1,750. By this morning, however, gold prices had broken above that mark again to the upside.
Silver spiked sharply higher. In addition to gold, silver was boosted by the Fed’s interest rate resolution. Silver prices extended their gains to 2% and were once strongly above $26.50.
The euro pulled up in the short term. Non-U.S. currencies showed varying degrees of advance. The euro pulled up more than 80 points against the dollar to 1.1970, breaking the previous sideways oscillation. Earlier, the euro was suppressed by the blockage of vaccination in Europe.
The British pound saw a wave of pull-ups. Likewise, the British pound saw a wave of pull-ups, with the pound hitting a high of 1.3977 against the dollar, before falling back a bit and now running around 1.3950. The BBC reported that the weekly supply of vaccines in the UK from March 29 will be reduced.
The Australian dollar is moving strongly higher. Let’s take another look at the Australian dollar. Earlier, the AUDUSD was trading sideways around 0.7730. Also on the back of the Fed’s interest rate resolution, the pair moved strongly upwards, breaking through the 0.7830 handle at one point.
U.S. oil was slightly under pressure. Finally, to look at the oil market, U.S. oil came under slight pressure during the day. US API Crude Oil inventories recorded a decrease of 1 million barrels, although the late release of EIA crude oil inventories recorded an increase of 2.396 million barrels, depressing oil prices. In addition, the stagnation of vaccinations in Europe sparked demand concerns, depressing market popularity. Nevertheless, the IEA monthly report showed that global crude oil demand will rebound by 5.5 million barrels per day this year.
[Risk Warning].
U.S. bonds: Fed’s dovish stance U.S. bond yields fear continued rise
The Fed reiterated its accommodative stance, and Chairman Powell said it was not time to start thinking about raising interest rates. In addition, Powell did not hint at depressing long-term yields. Wells Fargo believes that the Fed’s accommodative policy and the huge supply of Treasuries will continue to drive yields higher. 10-year U.S. bond yields could reach 1.75% in a few weeks and break 2% by mid-year.
British pound: the Bank of England will meet, the pound is expected to move cautiously
Dutch international strategists said the British authorities have dismissed safety concerns about the AstraZeneca vaccine. The impact of the suspension of vaccination on the pound may not be as big as other European currencies. As the Bank of England will meet today, the trend of the pound may be filled with a wait-and-see atmosphere.
Australian dollar: strong export trade, the Australian New Zealand is expected to rise through 1.10
Westpac expects the Australian dollar to find support above the 1.0650 handle against the New Zealand dollar and is expected to rise above 1.10, although expected returns for New Zealand farmers have been revised upwards as dairy prices have recently soared at auction. However, Australian export prices and volumes of key commodities have been very strong during the Epidemic. In fact, Australia has run a trade surplus for three consecutive years, while New Zealand continues to run a deficit. Strong export trade will support the Australian dollar.
[Key Forecast].
16:00 Lagarde may verbally suppress bond yields
Last week, the ECB announced its interest rate resolution, keeping the three key interest rates unchanged, maintaining the size of the emergency anti-epidemic bond purchase program at 1.85 trillion euros, and net purchases under the asset purchase program will continue at a rate of 20 billion euros per month. However, the pace of purchases under the emergency anti-epidemic debt purchase program will be significantly accelerated in the next quarter. It also said it will reinvest maturing PEPP bonds, which will last at least until the end of 2023, and will continue to provide sufficient liquidity through refinancing operations.
Following the interest rate resolution, Lagarde said that headline Inflation is likely to continue to rise in the coming months and that rising yields pose a risk to the financing environment that could lead to premature tightening if left unchecked, hence the members’ unified decision to accelerate the pace of bond purchases and to adjust all instruments as needed; she also called for a call for countries to implement timely stimulus measures.
Recently, German 10-year bond yields have moved higher again, and Lagarde may once again verbally suppress them. Based on this, we believe that Lagarde may emphasize that inflation will rise temporarily in the coming months, accelerate the speed of bond purchases to control bond yields, and will adjust all tools as needed. At the same time, she may call on countries to implement economic stimulus measures in a timely manner. In general, Lagarde will continue the dovish stance, the euro may suffer from suppression.
20:00 The Bank of England is difficult to make a big move
This evening, the Bank of England will announce its interest rate resolution. In the last interest rate resolution, the central bank kept interest rates unchanged, kept the bond purchase target unchanged and kept inflation expectations unchanged at 2%. It also said that it does not intend to tighten policy until the economic recovery has made significant progress, and is ready for negative interest rates, but there are operational risks in implementing negative interest rates within six months.
In the last month, the Bank of England said the U.K. economy could shrink by 4% in the first three months of 2021, then recover rapidly for the rest of the year and return to pre-pandemic size by the first quarter of 2022. Bailey said the central bank’s ultra-low interest rates, as well as its bond-buying program, would boost the expected recovery; he believes the current monetary policy stance is reasonable. By the end of the month institutions generally expect that the Bank of England will not make much of a move. Bailey also said that the UK economy will recover from the recession.
Based on this, we believe that the Bank of England will keep interest rates and bond purchases unchanged, maintain inflation expectations at 2%, and indicate that the economy will gradually recover. Need to pay attention to the central bank’s expression of higher bond yields and inflation, if the Bank of England yields rise as an optimistic signal of economic recovery, and said that the short-term will not intervene, then the pound may strengthen.
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