US dollar spikes past 100

The news shaping the markets today

Russia warned Sweden and Finland against joining NATO (North Atlantic Treaty Organization), while US officials said these countries could apply for a membership as early as June. Prospects of more geopolitical tensions sent the US dollar index higher this morning.

China’s annual inflation rate accelerated to a 3-month high of 1.5% in March 2022, from 0.9% over the previous couple of months. The figure also came in ahead of market expectations of 1.2%, which exerted pressure on the CNY/USD forex pair.

UK’s economy expanded by 0.1% in February, representing a sharp slowdown from the 0.8% growth recorded in January. The data also came in lower than the consensus estimate of 0.3%, sending the GBP/USD pair lower in forex trading this morning.

Russia announced the relaxation of capital control measures in a bid to support its currency. However, the RUB/USD forex pair continued its downtrend after the news.

South Africa’s industrial production contracted by 1.1% in February, versus 2% growth in the prior month. The figure was also worse than the market expectations of a 1.0% decline, which exerted further pressure on the ZAR/USD forex pair.

What’s happening: The US dollar strengthened in Tuesday morning trading, with a rise in Treasury yields.

What happened: The US dollar index surged past the important resistance level of 100, with Treasury yields rising to a 3-year high.

Investors chose the greenback amid geopolitical and economic uncertainties, favouring the US currency over other safe-haven options.

Why it matters: Investors grew increasingly concerned with reports of Russian forces preparing for aggressively expanding control in Ukraine’s eastern and southern regions. This comes after Russia failed to capture the capital city of Kyiv. Meanwhile, US and UK officials indicated they were working to verify unconfirmed reports of Russia using chemical weapons to attack Mariupol.

Market sentiment for the US dollar remained high, despite expectations of soaring inflation. Investors widely expect more aggressive interest rate hikes by the Federal Reserve, which will lend support to the greenback.

The US dollar also gained from the pressure on other major currencies. The euro continued to remain highly volatile after Emmanuel Macron beat far-right rival Marine Le Pen in the first round of France’s presidential voting. The voting indicated that the French presidential election runoff on April 24 could be a very tightly fought contest.

The British pound was weighted down by mixed UK data and rising covid-19 numbers in Europe and China. The GBP/USD pair tanked after UK’s GDP growth for February came in at 0.1%, significantly missing already-low expectations of 0.3%.

Gains for the Japanese Yen were also capped by the Bank of Japan’s more dovish stance. As of 0400 GMT today, the June US dollar index futures had added 0.02% to reach 100.02.

What to Watch: Markets will keep an eye on the Russia-Ukraine situation, with the US, UK, and Germany announcing plans of providing military equipment to Ukraine.

Investors will also monitor covid-19 cases in China and Europe.

The markets today

US stocks will be in focus today ahead of inflation and other economic data

Context: US stocks fell on Monday, as investors awaited the commencement of the next corporate earnings season and the Federal Reserve’s upcoming moves to counter inflation.

Details: US equity investors remained on the sidelines on the first trading day of the week due mainly to concerns around rising inflation in the country, fuelled by the continued upturn in commodity prices amid the Russia-Ukraine war.

Markets also continued to be cautious with expectations of the Federal Reserve becoming more aggressive in its monetary policy tightening. The US central bank is widely expected to hike its benchmark interest rates by a higher-than-average 50 bps (basis points) this year to cool prices.

Minutes from the March meeting of the Federal Reserve also indicated that policymakers may be gearing up to begin winding down assets from its $9 trillion balance sheet, moving away from the accommodative policies of the pandemic era.

Investor sentiment was supported by optimism around the upcoming quarterly earnings season. Analysts expect companies belonging to the S&P 500 index to report on average of 4.5% year-on-year growth in earnings for the first quarter, despite high inflation, continued supply chain constraints and a slight slowdown in GDP growth.

David Kostin, chief US equity strategist at Goldman Sachs, wrote in a note to clients that guidance and management commentary are likely to be the focus in the upcoming earnings season, rather than the figures reported for the first quarter. These could be a “key differentiator of stock performance,” Kostin added.

The Dow Jones index shed 1.19% to close trading at 34,308.08 on Monday, while the S&P 500 declined by 1.69% to reach 4,412.53. The Nasdaq 100 tanked 2.18% to settle at 13,411.96.

What to watch: Traders await the release of Consumer Price Index data, scheduled for release later today. Expert project inflation to accelerate to 8.4% year-over-year in March, representing the highest spike in prices since 1982.

Investors will also keep an eye on the US budget deficit in March. Although the gap narrowed to $217 billion in February, from the $311 billion in the same month last year, the figure came in significantly higher than market expectations of a $49.5 billion deficit and was the highest on record since July 2021.

Other Markets: Asian indices closed lower on Monday, with the Asia Dow, Nikkei 225, Hang Seng and Shanghai down by 1.23%, 0.61%, 3.03% and 2.61%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Eurozone’s economic sentiment index, Germany’s ZEW economic sentiment index and current conditions, Italy’s 12-month BOT auction, India’s industrial production, manufacturing production and inflation rate. US’s IBD/TIPP economic optimism, Fed Brainard’s speech, 10-year note auction, monthly budget statement and the API crude oil stock change, Japan’s Reuters tankan index and machinery orders as well as South Korea’s unemployment rate.