- The US central bank will need to hike interest rates further to control inflation.
- Policymakers emphasized that there is still potential for ECB interest rates to rise.
- Investors are expecting the testimony of the newly appointed governor of the Bank of Japan.
Currency futures ended Friday higher after hitting new lows on dollar strength. The market is still seeking hints on how the Federal Reserve plans to continue combating the persistent issue of high inflation.
The market anticipates that the US central bank will need to hike interest rates further to control inflation. Recent figures from the US show that the labor market is still tight, that inflation is persistent, that retail sales are growing quickly, and that producer prices are rising monthly.
The dollar will likely continue pushing higher this week, which could mean lower prices for currency futures.
Further helping the US dollar last week were Fed members’ hawkish comments, which implied that higher interest rates would be required to control inflation effectively.
According to data from the real estate website Rightmove, the average asking price for residential property in Britain increased by just 14 pounds ($17) in February compared to January, the smallest gain on record for a month that often experiences a significant seasonal surge.
This is yet another sign of weakness for the UK economy, presenting a challenge for the Bank of England as it raises rates.
On Friday, two prominent officials emphasized that there is still potential for ECB interest rates to rise. Investors raised the peak rate and dispelled low expectations from the last policy meeting.
Two of the 26 members of the Governing Council with the most influence, Isabel Schnabel, a board member of the ECB, and Francois Villeroy de Galhau, the head of France’s central bank, both voiced concern over continuing underlying inflation and opposed market pricing for interest rates.
Money markets currently show investors banking on an ECB rate peak of about 3.75% by late summer, up from around 3.4% earlier this month. This has capped losses for euro futures.
Investors are eagerly expecting the testimony of the newly appointed governor of the Bank of Japan on Friday to learn more about his views on the future of yield curve control (YCC) and ultra-easy monetary policy.
Analysts anticipate Kazuo Ueda will be cautious not to alarm markets since any indication of an early end to YCC may cause rates to jump globally and send the yen soaring.