DXY and gold steady, risk assets lifted as mood improves
11:00, 18 February 2022
The broad US dollar (DXY) held steady and the safe haven gold edged marginally lower in the European morning session, while investor sentiment in equities, high-beta currencies and crypto improved slightly after Russian and US officials agreed last night to meet in Europe next week, alleviating fears of an impending invasion in Ukraine.
The situation on Russia’s border with Ukraine, however, remains quite tense, with Ukrainian news sources (Kyiv Independent and Interfax) reporting incidents and rising violations of the ceasefire regime in the Donbas region.
Last night, St Louis Federal Reserve chair James Bullard reaffirmed his hawkish remarks on monetary policy. He urged that the Fed should begin unwinding its balance sheet in the coming months, and that it should deliver 100 basis-point hikes by July. He also said that if inflation does not subside, interest rates should eventually be raised above the Fed’s neutral rate (2%).
On the data front, UK retail sales increased by 1.9% month-on-month in January 2022, above the consensus estimate of 1%, indicating solid consumer demand last month. Looking ahead, markets will continue to pay careful attention to geopolitical headlines.
During the European afternoon, traders await the opinions of several important Federal Reserve officials (Charles Evans, Christopher Waller, John Williams and Lael Brainard) who will participate in the 2022 US Monetary Policy Forum.
Cross assets performance today
In the forex market, major pairs are relatively quiet today, with EUR/USD and GBP/USD flat. Safe havens the Japanese yen (JPY) and Swiss franc (CHF) eased 0.2% and 0.1% against the dollar. The US dollar index (DXY) is hovering flat at 95.80 levels by 11:45 UTC.
The high-beta Australian (AUD) and New Zealand dollars (NZD) are the best performers in the G-10 space, up 0.3% and 0.4% against the US dollar respectively. Oil-linked currencies, such as the Canadian dollar (CAD) and the Norwegian krone (NOK), saw no gains as crude prices dropped.
Among commodities, Brent and WTI oil plunged by 2% as worries over supply disruptions from a Russia-Ukraine conflict eased. The European natural gas benchmark (Dutch TTF) continued to trend lower, while US Henry Hub natural gas is down by 1%.
Metals erased some of the previous session’s gains, with gold hovering around $1,900 per ounce (-0.4%) and palladium falling by 1.1%. Meanwhile, copper, alluminium and nickel extended their gains, increasing by 0.8%, 0.4%, and 0.3%, respectively.
The UK’s FTSE 100 and German DAX are both marginally up 0.3%. The S&P 500 futures are also slightly higher.
A 7.7% drop yesterday sent bitcoin to test support in the $40,000-$40,500 region. The most popular cryptocurrency is down 0.8% in London midday trading today.
What is your sentiment on Palladium?
Chart of the day: Gold excelled, while bitcoin lagged this week
Bitcoin underperformed major asset classes in the last 24 hours – Credit: Capital.comPerformance matrix of major currencies – 18 February 2022
Performance matrix of major currencies as of 18 February 2022, 11:45 UTC – Credit: Capital.comForex performance heatmap – 18 February 2022
Forex performance heatmap as of 18 February 2022, 11:45 UTC – Credit: Capital.comUS dollar today
- The US Dollar Index (DXY) was at 95.80 at the time of writing, flat on the day.
During a panel at University of Columbia, St Louis Federal Reserve chair James Bullard warned about increasing inflationary risks if the Federal Reserve doesn't act quickly. “We’re at more risk now than we’ve been in a generation that this could get out of control,” he said.
Bullard argued that the Fed should start reducing its balance sheet in the second half of this year, and provide 100 basis-point rises by July. Additionally, he suggested that if inflation persists, interest rates should ultimately be hiked beyond the Federal Reserve’s neutral rate (2% ).Despite Bullard’s hawkish remarks, Fed futures prices indicate that market assigns a 32% chance, down from 50% a week ago, of a 50-basis-point (bps) hike in March. Traders are currently pricing in a 33 basis-point increase, down from almost 40bps earlier this week, according to the latest CME Group FedWatch tool.
- Rising demand for US Treasuries lead to softer yields in the long-end of the curve. The yield on two-year notes remained steady at 1.5%, while yields on the 10-year maturity notes edged down below 2%.
US dollar (DXY) technical levels
- 52-week high: 97.38
- 52-week low: 89.49
- 50-day moving average (one-day chart): 95.94
- 200-day moving average (one-day chart): 93.67
- 14-day relative strength index (RSI) (one-day chart): 49
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