In February, the U.S. equity market continued its impressive upward trajectory, reaching record highs. Dollar strength remained resilient, with DXY climbing near to 105 resistance level and ended the month +0.85% at 104.16. The unexpected jump in January inflation data has tempered expectations of an imminent Fed rate cut, with markets now fully pricing in only three 25bp rate cuts this year. Our baseline view for 2024 suggests that the dollar bear trend will gain momentum throughout the year.
On the back of dollar strength, Euro initially slid but recovered after testing the 1.0700 support level, concluding the month at 1.0805 (-0.12% m/m). ECB President Christine Lagarde anticipates a continued retreat in inflation in the euro zone and emphasizes the necessity for additional evidence indicating a return to their target inflation. Market consensus is leaning towards June as the most appropriate juncture to start the rates cut.
Sterling experienced a decline in the first half of the month, followed by a modest rebound after testing the 1.2600 level, ending the month at 1.2625 (-0.5% m/m). The outlook for the UK economy appears more promising, supported by lower-than-expected inflation numbers in January and a jump in retail sales volume. British finance minister Jeremy Hunt expressed confidence that inflation should reach target level of 2% in a matter of months.
Historic yen weakness has provided a conducive backdrop for share price gains, propelling Nikkei 225 to attain a new record high in February. USDJPY gained 2.08%, hovering around highs of 150. BoJ Governor Kazuo Ueda maintained a highly accommodative monetary policy stance, emphasizing the need for sustained inflation before any policy shift.
Aussie touched a four-month low of 0.6450, concluding the month at 0.6497 (-1.08% m/m). The RBA held cash rates steady at 4.35% as expected. Australia's labor market showed signs of cooling, with the unemployment rate rising to +4.1% in January. Inflation remained at a two-year low at 3.4% in January, reinforcing expectations that interest rates are unlikely to increase further. In New Zealand, the unemployment rate climbed to 4%, the highest since August 2021. The RBNZ held its Official Cash Rate unchanged at 5.50%, but its forward guidance took a more dovish tone than expected, causing the NZD to decline at the end of the month to 0.6087 (-0.49% m/m).
Gold surged to a record high in March, driven by bullish sentiment and increased market confidence in a potential June Fed rate cut. The precious metal also benefited from continued central bank purchases. Meanwhile, Bitcoin rallied to an all-time high of $69,000 as it approaches the scheduled halving in April 2024.
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