March FX Consensus Forecast

March FX Consensus Forecast

In February, the U.S. economy appears to be dealing with two major difficulties. The first is the issue between Ukraine and Russia and the second is the continued price increase. According to preliminary data, the world's largest economy increased by 7.2%in the fourth quarter of 2021, compared to the predicted 6.9%. The key economic engine was consumer spending, which was boosted by increased retail sales throughout the early holiday season. The Ukraine crisis entered the scene and complicated the economic outlook in the short term while officials debated how to withdraw monetary stimulus, accelerate tapering, and deliver rate hikes to manage record-high inflation. Meanwhile, the U.S. and its allies imposed more sanctions on Russia, including Swift and other measures. Consumers are anxious about high inflation and the expiration of the child tax credit while speculators are reconsidering their bets on the Federal Reserve, raising interest rates by a half-point.

Consumer spending remained resilient despite the Personal Consumption expenditure posting record-high figures. However, this looks gloomy in the near future. The month of January saw a 3.8% increase in retail sales compared to the 2.5% decline in the previous month. This was primarily due to increased consumer spending, which rose by 2.1% for the month of January. The majority of this was due to consistently high inflation. However, consumer spending is projected to darken since inflation has lingered longer than expected and the child tax credit system has expired, which was a surplus for families to spend. Furthermore, the elimination of this tax benefit enters a period of persistently high inflation in which Personal Consumption Expenditure (PCE)prices have risen to 6.3%, the highest since 1983, lowering consumers' purchasing power. Elsewhere, market participants are also interested in learning more about the Build Back Better (BBB) program. This provides a recovery plan through changes to maternity leave, voting rights, medical coverage, and includes a variety of other perks. In the State of the Union speech early next month, President Joe Biden is expected to revive stalled climate legislation by presenting a package of tax credits and detailing climate expenditures as a method to combat inflation and save the typical American family $500 per year.

Geopolitical tensions continue to peak as the U.S. and allies ramp up sanctions against Russia causing concern among policymakers about oil prices. Putin finally pulled the trigger in February. Russia launched a full-scale invasion of Ukraine in the last week of February, causing Europe's worst security crisis since World War II. According to the most recent sources, Russia escalated the fight on the sixth day of the invasion by announcing that it would continue until its goal of dematerializing the Ukrainian government was met. Russia increased its shelling of major cities, including Kharkiv, as a big convoy marched toward Kyiv. According to the United Nations figures, 12 million people within the country are projected to require help and protection. The figures further state that in the following months, more than 4 million Ukrainian refugees may seek shelter and assistance from neighboring nations. To date, more than 500,000migrants have fled Ukraine as a result of military pressure.

In response to Russia, the United States, the European Union, and their allies have chosen to exercise their muscles by cutting Russia off from the global financial systemSWIFT. The measures at the heart of those sanctions are steps to isolate Russian banks, including the country's central bank, thus choking the Russian economy by denying it cash. The backlash against Russia is still ongoing. Major Hollywood studios, including Disney, have halted new film releases in the nation, while Mastercard and Visa have restricted some Russian activity on their payment networks. As a result, the Russian currency fell by more than 25% on February 28th, and the Bank of Russia raised interest rates from 9% to 20% in order to increase liquidity. Furthermore, the Russian stock exchanges have been suspended for two days, and the Bank of Russia is anticipated to announce their restoration on Wednesday, March 2nd. Furthermore,foreign-listed shares in Russian companies continued to fall on Tuesday as investors attempted to unwind billions of dollars in holdings. Russia is now drafting a policy to address the country's stockpile and liquidity issues. The start of the war has gone poorly for Russia as half of Russia's international reserves have been frozen abroad. There is a high degree of uncertainty about what will happen next.

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