Worries about the economic impact of the war in Ukraine have rattled the euro in recent weeks. An increase in risk appetite led to an increase in risk-sensitive currencies, notably the Australian and New Zealand dollars. In Asian trading, Antipodean currencies held just below recent highs.
The South Korean won, hit by the recent surge in oil prices, recorded its best session in two years. Given Europe’s proximity to the conflict and its reliance on Russian energy, so-called good news about the war will benefit the Euro more than any other currency.
Oil fell but still holds above $100
After heavy losses as a tough path to a ceasefire emerged, the price of oil rebounded on Wednesday as attention turned to tight supply after industry group the American Petroleum Institute said crude inventories fell 3 million barrels in the week ended March 25. In New York, oil futures fell 1.6% on Tuesday, rebounding from a brief dip below $100 a barrel earlier in the session.
West Texas Intermediate futures fell more than 7% after Moscow said it would scale back military operations near kyiv and was interested in meeting Volodymyr Zelensky for a presidential meeting. Meanwhile, China is currently facing its biggest Covid outbreak since the pandemic began. According to Rystad Energy, Shanghai’s latest restrictions could reduce oil demand by up to 200,000 barrels per day during the lockdown. The government will publish its weekly inventory report on Wednesday.
March data on changes in non-farm payrolls from the ADP – which measures the monthly change in non-farm private employment – will be released on Wednesday. Businesses are expected to have created 450,000 jobs, slightly less than the 475,000 previously announced. Still, the data comes days before the official jobs report and is likely to be a barometer of market sentiment.
The data shows that the US labor market is doing well. However, no matter what, the Fed will still raise interest rates in March. In early March, ADP revised its January data from a contraction of 301,000 jobs to an increase of 509,000 jobs — a massive shift of 810,000 jobs that dramatically altered analysts’ view of the US labor market.
Additionally, the fourth quarter GDP reading is expected to show a 7.1% increase from the prior period, well above the latest figure of 2.3%. Based on data released to date, the economy is doing well and will likely continue to expand in the near future.
However, a critical variable that could negatively affect the outlook is the Federal Reserve’s tightening policy as it attempts to rein in inflation risks. Due to the steep state of the yield curve, the economy is likely at low risk of recession at this time.
Crude oil inventory data will be released later in the session, with analysts predicting a decline of 1.022 million barrels. Distillate inventories are expected to fall by 1.550 million this week. Similarly, gasoline inventories are expected to fall by 1.744 million, increasing concerns about supply shortages and reducing further near-term losses.