Hawkish Powell Roils Markets, Oil Rallies

Asian stocks traded higher this morning while European shares rose after Fed Chair Jerome Powell struck a more hawkish tone on monetary policy. In the currency arena, king dollar received fresh inspiration amid new rate hike bets as the selloff in bond markets deepened with 10-year Treasury yields hitting 2.34% this morning. Oil prices extended gains on Tuesday as EU countries considered banning Russian oil imports in response to the escalating tensions with Ukraine, while gold has displayed resilience against a strong dollar and rising yields, slipping towards $1930 as of writing.

Investors certainly have a lot on their plate as heightened geopolitical tensions, surging commodity prices, inflation fears and global growth concerns sap confidence. The week ahead promises to be eventful with speeches from various policymakers in focus. Overnight, RBA Governor Philip Lowe said Australia’s economy looks “pretty good” from where he’s standing when questioned by a journalist. It is worth keeping in mind that annual inflation in Australia rose to 3.5% in Q4, which is above the central bank's 2-3% target band. ECB President Lagarde and New York Fed President John William are scheduled to speak later today.

Dollar buoyed by hawkish Powell

It looks like the dollar bulls have been injected with renewed inspiration as the greenback flexes its muscles across the FX space this morning. Fed Powell said that the central bank is prepared to raise interest rates by 50bps at its next meeting if needed. This statement bolstered expectations over the Fed adopting a more aggressive approach towards monetary policy in the face of soaring inflation. 

King dollar is likely to extend gains, especially if Treasury yields push higher amid rising inflation. The major risk event for the dollar could be on Thursday as Joe Biden attends an emergency NATO Summit on Ukraine, as well as a G7 meeting. The conflict between Ukraine and Russia continues to sap investor confidence and fuel concerns over the global economy. There is a thick smog of uncertainty created by the military conflict with fears of further escalation leaving investors on edge.

If tensions escalate, this could send shockwaves across global financial markets sending investors rushing towards safe haven assets like the dollar. Should the emergency NATO meeting conclude on a positive note and revive optimism about peace talks between Russia and Ukraine, this could drag the dollar lower as “risk-on” returns.

Oil prices rally as EU considers Russian ban

Oil benchmarks appreciated this morning with both WTI and Crude gaining over 2% as the European Union debated banning oil imports from Russia.

The global commodity remains highly sensitive to geopolitical risks and concerns about a supply crunch, especially following the latest development with the EU. Should the bloc join the Russian oil embargo, this could propel oil prices higher as supply fears mount. Looking at the technical picture, WTI crude could challenge $120 and beyond if a daily close above $115 is achieved. The spike high from earlier in the month sits at $138.

Gold waiting for a fresh catalyst?

Gold remains pushed and pulled and by conflicting forces. Renewed Fed rate hike expectations, an appreciating dollar, and rising Treasury yields are nothing but trouble for zero-yielding gold. However, the uncertainty emanating from the heightened geopolitical tensions continues to foster a sense of unease stimulating appetite for safe-haven assets like gold.

This could be a big week for the precious metal due to speeches from Fed officials and the emergency Nato summit on Thursday. Whatever the outcome, it may set the tone and mood for the rest of the second quarter.

Regarding the technical picture, gold is back in a range with support at $1900 and resistance around $1950. The longer prices track sideways, the bigger the breakout could be, when it eventually comes.

Powell FED Bonds Oil Gold USD inflation Ukraine Hawks