Forex News – Inflation Feared by Central Banks While Markets Move in Different Direction

By ForexMansion.com

Central banks continue to weigh heavily on investors as shadows loom. The broad markets are confronted with many risk events that bring divergence within the financial markets. Investors fear being confident, thereby markets turned cautious until some stability signs emerge.

While ECB and BoE are due to released their monetary policy decisions on Thursday, investors will keep an eye on the FOMC minutes later today as well as the ISM non-manufacturing report (for services) which is expected to grow in March close to the fastest since 2005.

As the US economy may present more signs of expanding slowly yet steadily, the dollar rose today above the 76.00 level. Ben Bernanke said yesterday that the recent rise in commodity prices did not present a threat to inflation and that he believes inflation will not persist as prices might start falling by the end of this year.

News from Europe regarding the sovereign debt persists. Moody's downgraded Portugal's debt rating this morning, pushing the euro down from a five month high. Yet the losses were limited for the common currency as markets expect on Thursday a rate hike from the ECB.

While Europe encounters many financial problems, the euro may be soon surrounded by a complex of mixed issues, raising the question if those gains could be sustained. A rate hike this week may already be prices by the market participants, thereby the ECB will need to present a hawkish stand to keep the “positive momentum”.

The pound freed him self from the euro's grip and rose heavily today reaching the highest of 1.6249, after the economy released a better than expected report from the services sector, where the PMI rose to the highest in more than a year, to 57.1 from the expected 52.6, improving the outlook of UK's economic recovery.

The Australian dollar fell today not only on profit taking positions, since the currency rose to a 29 years high, but also after the Reserve Bank of Australia decided today to keep rates unchanged at 4.75% as expected. Meanwhile the yen continues to weaken as uncertainties surround Japan's economic outlook.

Asian stock markets fell today as Tokyo Electric Power Co started dumping radioactive water from the crippled Fukushima Dai-Ichi station into the ocean. Japan asked Russia to help with processing nuclear waste. So far, there is no sign that the situation is stabilizing, which is keeping investors worried.

Oil is well sustained above the 100.00 dollar level, raising questions about its impact on international economies. Oil prices rose more than 18% since the beginning of this year. This is driving food and every prices higher. Due to that, inflation is becoming a major concern for the central banks.

However, today oil eased a little falling below the 108 dollars per barrels, as the Libyan government said it is prepared to negotiate reforms, yet the leader's Moammar Gadhafi resignation is not an option. Amid the unrest that effect the global economy, gold is well sustained close to its record territory, at 1433.00 levels.

Originally posted here

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