The US dollar strengthened against its competitors on the back of Jerome Powell’s hawkish speech before the Senate Banking Committee. Powell said that the Federal Reserve is ready to go higher for longer as a series of economic data reports show a tight labor market combined with high inflation figures.

Blackrock’s economists suggested that “we think there’s a reasonable chance that the Fed will have to bring the Fed Funds rate to 6%, and then keep it there for an extended period to slow the economy and get inflation down to near 2%.”
 

Fed’s Jerome Powell: More rate hikes likely to come

Federal Reserve Chairman Jerome Powell said that interest rates would likely rise higher than central bank policymakers had expected. In his remarks, Powell mentioned: “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
 

Bank of Canada (BoC) decides on interest rates

The BoC’s governing board will convene on Wednesday to decide on interest rates. The benchmark interest rate currently stands at 4.5%. Most economists forecast that Canada’s central bank will pause its monetary policy tightening plan. Economists at the Bank of America (BoA) suggested that the BoC should monitor the Fed’s actions regarding interest rates. “Canada does not need more hikes to cool inflation, although they may be forced to hike if the gap in policy rates starts to cause major currency weakness,” they noted in a report.

The BoC’s policymakers had lifted rates in January, noting that the bank would monitor the effect of higher interest rates on the country’s economy. Statistics have shown that the Canadian economy didn’t grow in the last quarter of 2022, while January’s headline inflation came in at 5.9%, 0.4% lower than December’s figure.
 

Will the NFP figure rock the US dollar?

One of the most important data releases coming from the US is the Nonfarm Payrolls figures due to be published on Friday. Some market analysts suggest that February’s NFP figure could come in at 210k, a far cry from the 517k figure recorded in the first month of the year. However, it should be noted that there have been surprises regarding the NFP figures in the last few months.

The Bureau of Labor Statistics (BLS) is also expected to release the unemployment rate figure for February. Market analysts forecast that the rate remained unchanged at 3.4%.
 

China CPI inflation report

The National Bureau of Statistics (NBS) will reveal the headline inflation figure for February. Market analysts expect China’s inflation to come in at 1.9% on an annualized basis. Economists at Morgan Stanley told reporters that “we believe inflation will not be a major concern for China in 2023, and the country will keep overall prices stable within a reasonable range.” They also added that China’s economic rebound would be driven by consumption rather than infrastructure spending. The Chinese government’s target is to bring inflation to 3%.
 

Bank of Japan's (BoJ) interest rate decision on Friday

The BoJ will be the last central bank to announce its interest rate decision this week. Economists do not expect any changes regarding the BoJ’s benchmark interest rate. It should be noted that this will be the last governing board meeting with Haruhiko Kuroda as governor.

Although some economists suggested that maybe the board could tweak the yield curve control (YCC), Reuters sources said that “the BOJ is likely to hold off on making major changes to YCC given uncertainty over whether wages would rise enough to keep inflation sustainably around its 2% target.”

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