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US dollar jumps to around a two-year high

The news shaping the markets today

The US and its allies are expected to announce new sanctions on Russia after reports of civilians being killed in northern Ukraine. With no major changes in the Russia-Ukraine situation, WTI crude oil traded slightly lower this morning.


US new light-vehicle sales fell to 13.3 million units in March, from the previous month’s level of 14.1 million units, exerting pressure on Dow Jones futures.


China’s Caixin general services PMI fell to 42.0 in March, from 50.4 in the earlier month. This being the weakest reading since February 2020 sent the CNY/USD pair lower in forex trading this morning.


Hong Kong’s S&P Global PMI fell to 42.0 in March, from 42.9 in the previous month. The country’s private sector activity contracting for the third straight month, exerted pressure on the HKD/USD forex pair.


Brazil’s S&P Global Composite PMI climbed to 56.6 in March, from 53.5 in the previous month. Despite the country’s private sector signalling the fastest expansion since March 2010, the BRL/USD pair fell in forex trading this morning due to strength in the US dollar.

 

What’s happening: The US dollar surged to its highest level in around two years on Tuesday.

What happened: Hawkish comments from Fed officials helped the US dollar record gains in the session.

One of the Fed officials said that the interest rates could be hiked by half a percentage point over the next meetings.

Why it matters: Several speakers of the Federal Reserve issued their comments on the central bank’s plans around its balance sheet.

Federal Reserve Governor Lael Brainard said she sees methodical rate hikes along with rapid reductions to the central bank’s balance sheet. Kansas City Fed President Esther George added that the Fed may consider hiking its benchmark rates by 50 basis points.

Wells Fargo Securities analyst Erik Nelson said in a note to clients that the Fed appears poised to “reduce the balance sheet quite aggressively and much more quickly than the last cycle.”

On the economic data front, the ISM Services PMI for the US rose to 58.3 in March, from 56.5 a month ago, following the easing of pandemic restrictions. The S&P Global services PMI also improved to 58.0 in March, from 56.5 in February. US trade deficit remained near record high levels, coming in at $89.18 billion in February, versus a $89.22 billion gap in the previous month, as imports continued to grow.

The US dollar index, which tracks the greenback’s movement versus a basket of major rivals, climbed as high as 99.526 on Tuesday, reaching the strongest level since late May 2020. The index eased a little but still settled higher, at 99.47.

The USD/JPY gained around 0.7% to 123.63 on Tuesday, after surging to a one-week high of 123.66 earlier in the session. The EUR/USD also struggled following the outcome of the France’s elections. The euro settled lower at $1.0905 on Tuesday, just days after climbing to a one-month high of $1.1185.

What to watch: Traders will keep an eye on news of additional sanctions on Russia, which could lend further support to the US dollar. Rising covid-19 cases in some parts of the world will also remain in focus.

Investors will monitor the release of the FOMC meeting minutes, which will provide more insight into the Fed’s plans to increase rates.

The markets today

European stocks will be in focus today ahead of a couple of economic reports from the common bloc

 

Context: European stocks closed mixed on Tuesday, following the release of some economic reports.

Details: Investors continued monitoring developments around the Russia-Ukraine crisis. The US and Europe are looking to impose new sanctions against Moscow, following news of civilian killings in Ukraine.

On the economic data front, Eurozone’s final composite PMI declined to 54.9 in March, from 55.5 in the previous month. However, the latest reading came in slightly higher than analysts’ estimates. The S&P Global Eurozone services PMI was revised higher to 55.6 in March from a preliminary reading of 54.8, and slightly higher than February’s reading of 55.5

The pan-European Stoxx 600 gained 0.19% to close at 463.07 on Tuesday, with utilities stocks among the top performers. However, construction and material stocks recorded losses.

London’s FTSE 100 rose 0.72% to 7,613.72, with investor sentiment being supported by the S&P Global/CIPS services PMI for the country being revised higher to 62.6 for March, from a preliminary level of 61.

German DAX 40 and France’s CAC 40 lost 0.65% and 1.28%, respectively, on Tuesday.

What to watch: Traders await the release of economic data on producer inflation and construction PMI from the common bloc. The IHS Markit Eurozone construction PMI is expected to decline to 55.9 in March, from 56.3 in February. Annual producer inflation in the Eurozone, which surged a record high of 30.6% in January, is projected to accelerate further to 31.5% in February. Speeches from several members of the ECB will also remain in focus today.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones, S&P 500 and Nasdaq 100 down by 0.80%, 1.26% and 2.24%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0892 and 1.0897 Positive
USD/JPY – 123.96 and 124.06 Positive
Nasdaq 100 – 14797.20 and 14842.48 Negative
S&P 500 – 4522.54 and 4539.28 Negative
WTI Crude Oil – 101.06 and 101.92 Positive

 

Market snapshot

What else to watch today

Germany’s factory orders and construction PMI, France’s construction PMI, Italy’s construction PMI, UK’s construction PMI, Spain’s consumer confidence, Mexico’s gross fixed investment, US MBA mortgage applications, crude oil inventories, gasoline inventories, heating oil stocks, distillate stockpiles and Cushing crude oil stocks, India’s money supply M3, Canada’s Ivey Purchasing Managers Index, as well as Brazil’s value of loans.


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