Positive macroeconomic data in the US has given the upper hand to Fed, strengthening the agency further in its fight against inflation
The Federal Reserve announced on 1 February that it had raised its key federal funds rate by 25 basis points, setting the rate as 4.75 percent. US employment data came in above expectations: total nonfarm payroll employment rose by 517,000 in January 2023 and the unemployment rate changed little at 3.4 percent.
US economic activity in the services sector grew in January, with the ISM Services PMI registering 55.2 percent, while ISM Manufacturing PMI coming in at 47.4 percent, below expectations. Annual US consumer inflation came in at 6.4 percent in January, easing from 6.5 percent in December, according to figures released 14 February.
Fed officials, who are sticking to a tight monetary policy to bring inflation back to 2 percent, emphasized that they will continue strict fiscal policies.
The dollar index, which measures the greenback against six peers, continued to dominate the markets due to selling as a reaction by traders it went above 101, a level critical both technically and psychologically.
Eurozone rate increases, inflation going down
The euro area’s annual consumer inflation rate hit a seven-month low of 8.6 percent in January – in line with expectations– according to data released 23 February. The European Central Bank on 3 February confirmed expectations of a 50 basis point interest rate increase, taking its key rate to 3 percent. The interest rates on the marginal lending facility is 3.25, and as per employment data released 1 February, the unemployment rate in the eurozone rose to 6.6 percent. In Germany, the driving nation in the eurozone, the inflation rate for January came in at 8.7 percent, marking a partial decrease.
UK data shows unexpected bounce
UK servicing purchasing managers index (PMI) data for January came in at 48.7 percent, above expectations. Manufacturing PMI, which came in at 47 percent, was also above expectations. Unemployment data released on 3 February came in at 3.7 percent – in parallel with expectations – showing that the employment level has remained balanced. The central bank set its key rate at 4 percent after a 50-basis-point increase. The inflation rate hasn’t gone back to the targeted level just yet, but according to data released 15 February, it came in at 10.1 percent, seen as a positive development.
Asian markets remain balanced
The Caixin China General Manufacturing PMI edged up to 49.2 in January 2023 below the market consensus of 49.5. Chinese inflation continued to fall and slid to 2.1 percent in January, according to data released 10 FEbruary. PBOC, the Chinese central bank, left its lowest loan rate unchanged at 3.65 percent. The Austrian central bank increased its key rate by 25 basis points, setting it at 3.35 percent.
Rate reductions continue domestically
The annual inflation rate in Türkiye fell for a third consecutive month to 57.7% in January of 2023, the lowest since February of 2022, but higher than market forecasts of 53.5%. Industrial production announced on 10 February came in above expectations at -0.2 percent, while unemployment rose by 10.3. Retail sales date came in at 21.8 percent, above expectations. The Central Bank of Türkiye (TCMB) decreased its key interest rate by 50 basis points, down to 8.5 percent. Volatility in the country’s main stock market, Borsa Istanbul, remained seriously high. On average, the dollar rate remained stable at 18.80 against the Turkish lira throughout February.
Dollar dominance in place globally
As profit sales in the gold market continued, gold tested levels below $1,825 an ounce. The British Pound and euro were among the major currencies sliding against the dollar throughout the month of February. Early year rises in US yields didn’t last long. A short lived rally in crypto markets in January also continued into February in good news for crypto investors.