Concerns over the potential for a Trump trade war still seem to be weighing on the minds of investors, with a lack of risk appetite still leading to caution in global stock markets.  

Asian stocks were mostly mixed during early trading amid market anxiety while European equities are currently following the lead from Asia. Trade war fears are lingering in the atmosphere and with political uncertainty in Washington still dominating headlines, stocks could remain under pressure ahead of the highly-anticipated Federal Reserve meeting this week.

Will Powell elevate the Dollar?

The main risk event for the Dollar this week will be the two-day Federal Open Market Committee monetary policy meeting, which is expected to conclude with the central bank raising US interest rates.

With markets heavily pricing in a US rate increase this month, the decision might not have a significant impact on the Dollar. Investors will instead be expected to closely scrutinize the statement for fresh insight into how many times the Fed will raise interest rates in 2018.

Jerome Powell’s optimism over the US economy has encouraged further speculation that the Fed might raise interest rates four times this year. Investors will be paying attention to see if Powell maintains a hawkish stance during his first press conference as Fed Chair.  They will also be looking for further indications regarding the potential of four US interest rate increases this year and this would be seen as encouragement for reigniting trader demand for the USD.

Expectations of higher US interest rates are considered as the main catalyst to improve Dollar demand. Political instability in Washington and concerns about Trump’s trade policies negatively impacting the US economy, are seen as the major risks for Dollar demand.

The Dollar is still being driven by conflicting fundamental themes, and there is room for volatility in the Greenback this week.

UK inflation and BoE meeting in focus

This week is a potential busy one for the British Pound. Investors will be tussling with a variety of different economic releases, including inflation, jobs data, retail sales and a Bank of England policy meeting.

Inflation data for February is expected to edge slightly lower which could pressure the Pound. A decline in inflation pressure would be seen as a threat to the Bank of England possibly raising UK interest rates later this year.

The Bank of England is widely expected to leave interest rates unchanged this month.

Attention will be directed to the language of the accompanying statement, in case the wording provides any clues towards the potential timings of a change in UK interest rates.

Sterling not only remains highly sensitive to monetary policy speculation but also to ongoing Brexit developments. Any fresh signs of the Brexit negotiations moving in the right direction could push the British Pound higher.

Gold depressed ahead of FOMC

Gold extended losses on Monday with prices dipping below $1310 as the Dollar remained buoyed by expectations of an interest rate hike by the Fed this week.

Although fears of a trade war and US political uncertainty have stimulated appetite for safe-haven assets, price action suggests that Gold remains pressured due to speculation of higher US interest rates. Taking a look at the technical picture, Gold is under increasing pressure on the daily charts. Prices are trading below the daily 50 SMA while the MACD has crossed to the downside. Sustained weakness under $1314 could encourage a decline towards the psychological $1300 level.

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