The financial markets are gearing up for a pivotal week ahead, filled with political and economic developments that could drive volatility across currencies, equities, and commodities. From the German elections’ impact on the euro to the critical US PCE inflation data, traders and financial professionals will want to keep a close eye on these key events.
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Key Points to Watch Out For:
- The pain of the dollar could intensify, as the US CPI is forecast to weaken slightly.
- The Bank of Canada faces the dilemma of cutting rates amid US tariffs.
- UK and Japanese indicators are also in the spotlight.
Will the US CPI Report Ease Inflation Concerns?
With President Trump’s shifting tariff policies, the US Consumer Price Index (CPI) report for February, due on March 12, could offer some relief. This report may indicate a downward trend in inflation, following January’s Personal Consumption Expenditures (PCE) data.
The Federal Reserve has been battling high inflation, which remains a challenge. Despite some recent inflationary pressures, there is hope that inflation will decline in the coming months.
However, Trump’s tariffs remain a concern. The new tariffs on Canada, Mexico, and China could derail the Fed’s efforts to control inflation, which targets 2.0%.
In January, overall CPI reached 3.0%, the highest since June 2024, while core CPI increased to 3.3%. February’s data is expected to show a slight decline, with headline CPI forecasted to drop to 2.9% and core CPI to 3.1%. The month-on-month forecasts for both are 0.3%.
Later in the week, on March 13, the Producer Price Index (PPI) for February will provide further insights into underlying price pressures in the US. Investors will also focus on the University of Michigan’s preliminary consumer confidence survey on March 14, which last month showed rising inflation expectations.
Can the Dollar Recover?
If inflation expectations rise, it could undermine the belief that inflation is under control, which would cause the Federal Reserve to remain cautious. However, with the US dollar falling over 3% recently, any surprising data could spark a rally.
Bank of Canada Rate Cut Expected
On March 12, the Bank of Canada (BoC) will meet to discuss interest rates. Amid trade tensions with the US, Canada has already announced some retaliatory tariffs. While Trump has delayed tariffs on Canadian goods until April 2, ongoing trade tensions could affect the Canadian economy and drive up the prices of US imports.
The BoC might lower interest rates again in March, despite signs of economic recovery in Canada. There’s a 66% chance of a 25-basis-point rate cut. If the BoC cuts rates, the Canadian dollar could strengthen against the US dollar, especially if they hint at pausing future cuts.
Will UK Data Impact the Pound?
The British pound has been rising with the weakening US dollar. The pound is aiming for the $1.30 mark, recovering from January lows. However, the UK economy faces challenges, particularly with the looming threat of no-deal Brexit tariffs.
On March 14, investors will focus on UK data, including industrial production, manufacturing, and GDP figures. A dip in GDP could put pressure on the UK government to take action to support the economy ahead of the spring budget.
Yen Struggles Amid Trade Concerns
The Japanese yen has been underperforming despite the Bank of Japan’s efforts to maintain its position. President Trump’s comments about Japan manipulating its currency have raised concerns that Japan could face tariffs next.
This week, Japan will release key data, including January wage growth, household spending, GDP revisions, and corporate goods prices. These indicators will help gauge whether Japan’s inflation is moving toward the Bank of Japan’s 2% target.
Market Outlook
The week of March 10-14 is shaping up to be an important one for global financial markets, with several key political and economic events that could drive volatility across currencies, equities, and commodities. From critical US economic reports, including CPI inflation data, to trade-related tensions between the US and its neighbors, traders will need to remain alert to potential market shifts. Key data releases in the UK and Japan will also add to the mix of factors influencing global markets.
