Earlier, data on employment and business activity in the US economy were released. According to Automatic Data Processing (ADP), employment in the non-farm private sector increased by 63.0K in February, significantly exceeding the forecast of 50.0K and the January figure of 11.0K. Meanwhile, the S&P Global services PMI declined from 52.7 to 51.7 points but remained in expansion territory, while the corresponding index from the Institute for Supply Management (ISM) rose from 53.8 to 56.1 points, confirming the resilience of the labor market and the continued expansion of one of the key sectors of the economy. This increases the likelihood that the Federal Reserve will keep interest rates within the 3.50–3.75% range for an extended period. It should also be noted that policymakers currently have no unified view regarding further steps in monetary policy. However, most officials lean toward a hawkish stance, fearing a return of peak inflation amid rising energy prices caused by the escalation of the military conflict involving the United States, Israel, and Iran. An exception appears to be Stephen Miran, who consistently supports the Republican administration’s view that monetary conditions should be adjusted. Speaking on Bloomberg TV, he stated that risks related to the Middle East conflict have not changed plans to reduce borrowing costs later this year, as price pressures are likely to continue easing while the labor market remains weak. It is also worth noting the official nomination of Kevin Warsh for the position of Federal Reserve Chair. Previously, the official argued that the recovery of industrial output driven by the adoption of artificial intelligence technologies creates conditions for a more dovish policy stance without additional pressure on consumer prices. However, confirmation may face obstacles, as Republican Senator Thom Tillis has already pledged to block any White House nominee until the Department of Justice halts its investigation into current Fed Chair Jerome Powell, which he says undermines investor confidence in the independence of financial authorities.
Eurozone
The European currency is losing ground against the pound and the US dollar while showing mixed dynamics against the yen.
January retail sales data in the eurozone were released today and delivered mixed results. On a monthly basis, sales declined by 0.1% against expectations of a 0.3% increase, while on an annual basis they rose by 2.0%, exceeding forecasts of 1.7%. Overall demand remains moderate but could come under pressure in the near term due to the deteriorating economic outlook amid the prolonged conflict between Iran and the United States. In addition, three representatives of the European Central Bank (ECB) warned about the risks associated with the situation. ECB Vice-President Luis de Guindos, Bundesbank President Joachim Nagel, and Bank of Finland Governor Olli Rehn noted that a prolonged confrontation could lead to stronger inflationary pressure and slower economic growth.
United Kingdom
The pound is weakening against the US dollar but strengthening against the euro and showing mixed performance against the yen.
February data on business activity in the UK construction sector were released today. The indicator declined from 46.4 to 44.5 points, significantly below the preliminary estimate of 47.0 points, confirming negative dynamics for the fourteenth consecutive month due to the suspension of several construction projects. The sub-index also continued to weaken for the eighth month in a row, falling from 39.3 to 37.0 points. Investors are also focused on the Bank of England survey regarding employers’ expectations for wage growth this year. The figure remained unchanged at around 3.6%, the lowest level in four years. Management also confirmed plans to adjust staff numbers by 0.1% and increase product prices by around 3.4%.
Japan
The yen is weakening against the US dollar and showing mixed dynamics against the euro and the pound.
In the absence of major economic releases, price movements are mainly driven by external factors. The Japanese Trade Union Confederation (Rengo) announced that it will seek an average wage increase of 5.94% this year. Although slightly lower than last year’s 6.09%, the figure remains well above the Bank of Japan’s inflation target of 2.0%, supporting expectations of a hawkish monetary policy stance. The organization also expressed concern about the consequences of the expanding conflict in the Middle East, which could significantly raise oil prices and accelerate inflation.
Australia
The Australian dollar is weakening against the US dollar, the euro, and the pound today while showing mixed performance against the yen.
Investors and forex traders are focusing on the release of January foreign trade data, which turned out to be relatively weak. Imports increased by 0.8% after a decline of –1.8% in the previous month, while exports fell by 0.9% following a similar increase in December. The figures indicate signs of a slowdown in the national economy, although they are unlikely to influence the Reserve Bank of Australia’s (RBA) decision regarding monetary tightening. Most analysts expect the regulator to remain cautious this month and keep borrowing costs unchanged, but anticipate a 25-basis-point increase to 4.00% at the May meeting. Currently, traders estimate the probability of such a move at around 80.0%.
Oil
Oil prices are once again attempting to move higher amid the escalation of the Middle East conflict.
According to Politico, US military officials now expect the conflict to last at least 100 days, whereas earlier estimates suggested only several weeks. This significantly increases the risk of rising energy prices, as the Strait of Hormuz may remain blocked for an extended period. For now, rapid price growth is limited by the latest report from the US Energy Information Administration (EIA), which showed that crude oil inventories increased by 3.475 million barrels last week, distillate stocks rose by 0.429 million barrels, while gasoline inventories declined by 1.704 million barrels. Meanwhile, US Energy Secretary Chris Wright stated that the impact of the Iran-US conflict on energy markets will be temporary and limited, promising that tankers will eventually be escorted through the blocked shipping route, although not immediately but at some point in the future.
