Forex Today: DXY ends week flat after Powell and NFP, ahead of US CPI; Wall Street plunges

What you need to take care next week: 

The US Dollar dropped sharply on Friday after the US employment report. The DXY erased all the gains that followed Federal Reserve Jerome Powell’s hawkish remarks. The US economy added more jobs than forecast in February (311K vs 205K) and confirmed the shocking numbers of January. However, the Unemployment Rate rose to 4.6% and wage growth slowed down. Before NFP, expectations about a 50 basis points rate hike at the next FOMC meeting were elevated and then pulled back, pushing US yields to the downside. Treasury bonds also rose amid risk aversion. The VIX (Fear index) jumped on Friday to 27.42, a level not seen since late October. US stock indices added to losses on Friday, ending the week with a decline of more than 4%.

Next week will be quiet on Fed talk as FOMC enters the blackout period. It will be time for rumours and speculations ahead of the March 21-22 meeting. Analysts differ in their forecast, some going for a 25 bps hike and others for 50 bps. The key economic report that could end the debate will be on Tuesday with the US Consumer Price Index. Those numbers would be critical for the consideration of the Fed’s rate hike. More inflation numbers are due on Wednesday with the Produce Price Index; also Retail Sales will be reported the same day. 

DXY peaked near 106.00, the highest since November and then dropped all the way back to 104.50. The US 2-year Treasury yield rose to the highest since 2007 at 5.08%, falling on Friday to 4.58%, the lowest in three weeks. Despite DXY’s reversal, the Dollar held onto weekly gains versus emerging market and commodity currencies. 

USD/JPY dropped for the second week in a row after being unable to consolidate above 137.00 hit by lower bond yields and the sell-off in Wall Street. At Kuroda’s last meeting, the Bank of Japan kept its policy rate, the Yield Curve Control parameters and guidance unchanged. 

Among the week’s top performers was the Swiss Franc boosted by risk aversion, lower yields and Swiss inflation data. USD/CHF suffered the worst weekly loss since November. The Australian Dollar was the biggest loser on G10 space affecter after the Reserve Bank of Australia’s dovish rate hike. Next Thursday, Australia will report employment numbers. AUD/USD broke the key 0.6600 support area and plunged to the weakest since November. One of the best of the week was selling AUD/CHF after the RBA meeting. 

USD/CAD gained over 200 pips over the week, posting above 1.3800, the second-highest weekly close since May 2020. On Wednesday, the Bank of Canada left rates unchanged (as expected) after eight consecutive hikes and said it will stay on “a conditional pause”. The Canadian economy added 21.8K jobs in February, above the 10K expected. 

EUR/USD erased weekly losses rising back toward 1.0650 on Friday. The pair continues to move sideways between 1.0530 and 1.0700. Next Thursday, the European Central Bank is expected to hike interest rates by 50 basis points. Some debate is emerging at the board about its forward guidance. EUR/GBP is still clinging to the 0.8850 area. GBP/USD rebounded from 1.1800, peaked at 1.2115, to settle around 1.2040. UK employment data is due on Tuesday.