On March 4, New York Fed President John Williams stated that the economic impact of US-Israel attacks on Iran would depend on the duration of disruptions to asset prices, particularly oil prices. When asked about the potential effects of the current conflict on US inflation during a press conference on Tuesday local time, Williams remarked, "We still need to observe how long this impact will last." So far, the impact on financial markets has been "relatively mild." Williams noted that it is still too early to make a broader assessment of how the conflict involving Iran will affect the global economy. Williams mentioned that once the effects of tariffs largely subside and inflation slows further, it would be appropriate for the central bank to continue easing monetary policy. "If inflation develops in line with my expectations, further reductions in the federal funds rate will be necessary in the future. This would prevent monetary policy from inadvertently becoming more restrictive," he added, stating that tariffs would continue to exert some additional pressure on consumer prices in the first half of this year, after which the inflation rate is expected to fall to 2.5% by the end of 2026 and return to 2% in 2027.
In other news, the CEO of Japan Post Insurance indicated that, based on expectations for further interest rate hikes by the Bank of Japan, the company plans to sell its low-yield government bonds and replace them with higher-yielding bonds. Kunio Tanigaki, the company's CEO and President, emphasized in an interview, "Adjusting in the context of rising interest rates is crucial to reasonably benefit from the hikes." He added that market interest rates "will continue to rise in the near future." The life insurer anticipates that the Bank of Japan could raise interest rates again as early as April. A company spokesperson stated on Tuesday that, since the outbreak of conflict in the Middle East over the weekend, there has been no change to its interest rate expectations.
Key data to watch today includes the UK February SPGI Services PMI Final, Eurozone February Harmonized CPI Year-on-Year, Eurozone January Unemployment Rate, US February ADP Employment Change, US January Durable Goods Orders Monthly Revision, and US February ISM Non-Manufacturing PMI.
Gold / USD Gold experienced a significant decline yesterday, briefly falling below the 5000 mark and hitting a 7-day low. The pair is currently trading around 5160. Besides profit-taking exerting some downward pressure on gold, the US dollar index's rise, supported by renewed expectations of a Fed rate hike, also contributed to the decline. Additionally, an increase in US Treasury yields placed further pressure on gold. Resistance is noted near 5250 today, with support around 5050.
AUD / USD The Australian dollar moved lower in a volatile session yesterday, briefly dropping below the 0.7000 level to reach a 17-day low. The pair is currently trading around 0.7000. Apart from profit-taking pressuring the currency, the US dollar index's break above the 99.00 mark, bolstered by factors including renewed Fed rate hike expectations, was the primary driver behind the Aussie's decline. Moreover, weaker-than-expected economic data from Australia during the session added to the downward pressure. Resistance is observed near 0.7100 today, with support around 0.6900.
USD / JPY The USD/JPY pair advanced yesterday, testing the 158.00 level and reaching a 6-week high. The pair is currently trading around 157.60. Alongside increased safe-haven demand for the US dollar due to heightened market risk aversion, renewed expectations of a Fed rate hike provided additional support. However, concerns over potential further intervention by the Bank of Japan in the currency market limited the pair's upside. Resistance is seen near 158.50 today, with support around 156.50.
