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The dollar continued to strengthen last week, gaining support from rising yields on 10-year US Treasuries. Last week their yield reached another maximum since 2011 at the level of 3.122%. The increase in the yield of US Treasury bonds strengthens expectations of accelerated rates of tightening monetary policy in the United States. The yield of US Treasury bonds exceeded the yield of bonds of other developed countries for the first time in almost 20 years. Higher rates attract investors looking for profitability to the US currency.
The main event of the past week was, perhaps, the statement of Donald Trump about the unilateral withdrawal of the US from the “nuclear deal” with Iran. The resumption of sanctions will lead to a reduction in Iran’s oil production, a key member of OPEC, and a reduction in world oil supply by at least 700,000 barrels per day due to Iranian oil.Trump’s statement stirred markets and led to a further rise in the price of oil. So, over the past week the barrel of Brent oil has risen in price by 2.8%, coming close to the level of 78.00 dollars. The dollar also continued to strengthen last week. However, lower yields on US government bonds and weaker-than-expected data on consumer inflation in the US, published on Thursday, provoked the closure of long positions in the dollar, which caused its decline at the end of the week.
The focus of the traders will be the meeting of the Bank of England on the topic of monetary policy, and the decision on the interest rate. It is expected that the Bank of England will raise the rate by 0.25% to 0.75%. However, the opinions of market participants on this issue were divided. If the rate still remains at the same level of 0.5%, then the pound is likely to fall under the sell-off.
Market participants are preparing for the most important events of the current week – publication of the Fed decision on the rate (Wednesday 18:00 GMT) and publication of data from the US labor market in April (Friday 12:30 GMT). An increase in the rate at this meeting of the Fed is not expected, however, an increase in the volatility of financial markets during the publication of comments by the Fed can not be avoided. The tough rhetoric of Fed Chairman Jerome Powell and a positive assessment of the prospects for the US economy will strengthen the dollar’s position.
The week will be full of important events. Perhaps the most important day of the week will be Thursday, when at 11:45 (GMT) the ECB will publish an interest rate decision, and at 12:30 (GMT) a press conference will begin, at which ECB President Mario Draghi will give explanations about the decision, and, perhaps, will point to the prospects for monetary policy in the Eurozone in the short term.
The attacks on Syria did not lead to a serious aggravation of the conflict, and investors regarded them as a “relaxation” of tensions between Russia and the United States. The dollar index DXY, reflecting its value against the other 6 major currencies, is falling again, and the major US stock indices even rose on Monday, recovering from the fall amid a possible exacerbation of the trade conflict between the US and China.
In the financial markets, excitements and sharp fluctuations of quotations continue against the backdrop of trade contradictions between the US and China. Last week, China announced import duties on American goods totaling $ 50 billion in response to the White House’s earlier decision on import duties on 1,300 categories of Chinese goods, worth $ 50 billion.
The focus of traders this week will be the report on the US labor market for March, which will be released on Friday. Data on the unemployment rate and the number of jobs created outside the agricultural sector will be published, but the dynamics of the average hourly wage of Americans will be of greatest interest in the report. The higher the salary, the higher may be the future inflation and the greater the impact this will have on the rhetoric and the actions of the Fed in relation to monetary policy
Last week, investors focused on exacerbating trade relations between the US and China, which exchanged harsh statements about Washington's plans to use duties to reduce trade imbalances. Washington plans to exert influence on Beijing through fees, cuts in investments and other measures to reduce the deficit of China's and US foreign trade by $ 375 billion.
The release a large amount of economic data for the Eurozone, the United Kingdom, the United States is expected this week, but participants in financial markets will pay special attention to the Fed meeting, which will begin on Tuesday and end on Wednesday with the publication of the decision on rates. It is widely expected that the US central bank will raise the range of key interest rates by 25 basis points, to 1.50% -1.75%.
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