Global market sentiment continued improving this past week. On Wall Street, the Nasdaq 100, S&P 500 and Dow Jones gained 4.32%, 2.47%, and 1.81%, respectively. Across the Atlantic Ocean, the German DAX 40 gained 0.77%. Meanwhile, in the Asia-Pacific region, the Nikkei 225 and Hang Seng Index rose 3.12% and 5.15%, respectively.
Global financial conditions continue easing, helping restore liquidity in the market even though the Federal Reserve is still hiking rates and unwinding its balance sheet. As such, the US Dollar is feeling the pain and had another lackluster week – see the chart below. Gold prices have also been gaining, albeit momentum has faded over the past couple of weeks.
A notable standout last week was the Australian Dollar. Higher-than-expected fourth-quarter inflation boosted hawkish RBA policy expectations, pushing AUD/USD higher. The sentiment-linked currency is also benefiting from the improvement in risk appetite. The similarly behaving New Zealand Dollar also rose this past week.
Ahead, all eyes turn to the FOMC rate decision on Wednesday. The pace of tightening is expected to slow to 25 basis points. But, what traders will be caring about is how the central bank’s outlook evolves relative to market pricing. The market appears more dovish than the Fed, setting the stage for disappointment.
Other notable event risks in the week ahead include January’s US non-farm payrolls report as markets continue gauging the health of the economy. The BoE and ECB rate decisions are also due for the British Pound and Euro, respectively. China releases manufacturing PMI for AUD/USD. What else is in store for markets in the week ahead?