The activity in the foreign exchange market wrapped up on a lackluster note, failing to establish any clear direction. The highlight of the week was the release of the Core Personal Consumption Expenditure (PCE) Price Index. Excluding food and energy, it increased by 0.4%, surpassing the anticipated 0.3% month-over-month increase.
This uptick pushed the annual Core PCE to 2.8%, compared to a forecast of 2.7%. This data is essential as it gauges price changes for goods and services that consumers purchase for personal use, providing insight from the consumer’s perspective.
This key inflation indicator exceeded market expectations, reinforcing the belief that the Federal Reserve is unlikely to lower interest rates in the near term.
Fed officials have previously stated they plan to cut interest rates twice this year.
At the same time, consumer behavior indicates a more conservative approach, as spending has decreased while savings have increased.
The effects of tariffs are beginning to take hold, with estimated data showing that inflation expectations for the next year have jumped to 5% from 2.6%, while long-term expectations have risen to 4.1%, the highest level in 31 years.
Over the past two months, the trade deficit has exceeded $300 billion, negatively impacting consumer sentiment and raising concerns about stagflation.
Two significant events this week are the US payroll reports and tariff increases.
However, the market and investors will be primarily focused on the reciprocal tariffs set to affect major US trading partners, which are expected to go into effect on April 2.
A new 25% tariff on automobile imports has been added to this list. This is a critical issue that could shape global economic prospects. An unknown factor remains: how these tariffs will impact various economies once implemented, necessitating greater clarity as affected countries have yet to announce their countermeasures.
Additionally, this week’s payroll report might show the effects of layoffs from federal workers due to actions taken by the Department of Government Efficiency (DOGE).
Although Fed Chairman Powell stated that the jobs market is “in balance,” the corporate sector is approaching new hiring plans with caution.
In Europe, the European Central Bank has suggested a pause in its rate cuts, but the potential impact of the 25% tariff on auto imports, which include parts, could be significant and might pressure the ECB to consider rate easing sooner.
This scenario would not favour the European currency.
Similarly, the Japanese Yen has also lost its status of a safe haven and has weakened due to tariff-related concerns, though on Friday there was some late recovery due the Japanese fiscal year end.
The reciprocal tariffs could hinder Japan’s growth, potentially dissuading the Bank of Japan from raising rates.
Data releases this week will include the Chicago PMI, JOLTS job openings, the ADP employment report, factory orders, Challenger layoffs, and the payroll numbers.
WEEKLY OUTLOOK - March 31- April 4
#GOLD @ $ 3084- This week gold has reached a record high of $ 3086.90. News related to tariffs and ongoing geopolitical instability are prompting investors to purchase gold.
Buyers are likely to stay engaged and are anticipated to buy on price dips, which may lead to further price increases. Gold has support levels at $ 3055 and $ 3028. A breakout above $ 3099-02 could lead to testing levels around $ 3112-15.
#EURO @ 1.0830- Euro faces resistance at 1.0898. A distinct breach of this level would pave the way for a rise to 1.0925. Support is located at 1.0765, with major support found at 1.0705.
#GBP @ 1.2940- Pound Sterling is ‘a buy on pullbacks’ situation and should remain above 1.2850-60. However, it must break through the 1.3010-20 level to continue making gains, or it may retrace toward the support zone.
#JPY @ 149.82- A significant movement observed in Japanese currency at the end of week, due the fiscal year on March 31. The important support level is 148.50, which needs to hold for the US Dollar to resume its upward trend.
If it breaks through 150.80, it will move towards 151.20. However, if the support level fails, it could drop further to 147.70.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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