Hotter-Than-Expected Core Inflation in Japan Sparks Rate Hike Talk, Threatens Crypto

Michelle

Forex

Economic

Summary:

Japan’s headline inflation remains nearly 100 basis points higher than U.S.counterparts.

Just when it appeared that the yen scare could be easing, Japan has reported an uptick in core inflation.

Data released early Friday showed Japan's core inflation, which stripes out prices for fresh food, rose 3% year-on-year in February, moderating from January's 3.2% but beating the consensus forecast for 2.9%. The headline consumer price index eased to 3.7% from 4%.

Overall, both indices remained well above the Bank of Japan's 2% inflation target, validating the central bank chief Haruhiko Kuroda's declaration of victory over decades of deflation. Notably, since November, Japan’s headline inflation has been running hotter than that of the U.S.—almost 100 basis points (bps) higher now.

The sticky inflation, plus wage hikes from the shunto wage negotiations, have bolstered calls for BOJ rate hikes. In other words, a potential yen rally, known to destabilize risk assets, including cryptocurrencies, is back on the table.

As of writing, the dollar-yen (USD/JPY) pair traded at 149.22, having bounced nearly 300 pips in a sign of renewed yen weakness since March 11, according to data source TradingView.

Hotter-Than-Expected Core Inflation in Japan Sparks Rate Hike Talk, Threatens Crypto_1

U.S.-Japan 10-year yield differential. (TradingView/CoinDesk)

That said, the narrowing or declining U.S.-Japan 10-year bond yield spread supports yen strength. Japanese yields have been rising across the curve, offering bullish cues to the yen. As of writing, Japan’s 10-year bond yield held above 1.5%, and the 30-year yield was above 2.5%, both at multi-decade highs.

A renewed yen strength could translate into risk aversion, the likes of which we saw in August last year.

Source: CoinDesk

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Glendon

Cryptocurrency

The largest altcoin Ethereum (ETH) has been lagging behind Bitcoin and its market for a long time as it struggles to combat the declines it has experienced.

Leaving investors disappointed with its poor performance, ETH's supply on cryptocurrency exchanges has dropped to very low levels.

Cryptocurrency analysis platform Santiment said in its latest assessment that ETH supply on exchanges has fallen to its lowest level since November 2015.

“Thanks to the many DeFi and staking options, Ethereum holders have reduced the available supply on exchanges to almost 8.97 million. This is the lowest level in nearly 10 years (November 2015). There is 16.4% less ETH on exchanges compared to just 7 weeks ago.”

Santiment said that ETH has been rapidly leaving crypto exchanges, with exchange balances 16.4% lower since the end of January.

This is considered a signal that investors are moving ETH to cold storage wallets for long-term holding and that the Ethereum price will increase in the future.

At this point, analysts note that a significant drop in ETH supply on exchanges is commonly known as a supply shock and signals a potential price increase. However, the price increase will only occur if demand remains strong or increases to outweigh the decreasing supply.

While the decline in exchange supply gives investors hope for ETH, analyst Scott Melker, nicknamed “The Wolf of All Streets”, stated that ETH is at a critical crossroads and said, “Either Ethereum bounces from here and these levels become a generational bottom, or everything is over for ETH.”

Source: CryptoSlate

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Blue River

Technical Analysis

The EUR/USD pair is trending downward, approaching 1.0829 on Friday as investors evaluate the latest developments in US Federal Reserve monetary policy.

Key drivers behind EUR/USD movement

On Wednesday, the Federal Reserve held its current interest rate and overall monetary policy framework unchanged. However, the central bank signalled that two rate cuts could be expected later this year. In its commentary, the Fed highlighted growing risks to economic recovery, employment stability, and inflation trends.

Fed Chair Jerome Powell downplayed concerns about the inflationary impact of tariffs imposed by the Trump administration, describing them as temporary. Powell also emphasised that the Fed would not rush into further rate cuts, reinforcing a cautious approach to monetary easing.

Adding to market uncertainty, Trump’s retaliatory tariffs – targeting countries that have imposed duties on US goods – are set to take effect on 2 April. Over the past 24 hours, the US dollar has strengthened amid fears of slowing global economic growth and escalating trade tensions. These factors have reinforced risk-averse sentiment among investors.

Technical analysis of EUR/USD

On the H4 chart, EUR/USD declined to 1.0815, followed by a correction to 1.0860. A further decline towards 1.0765 is highly likely, with this level remaining the primary target. The MACD indicator supports this scenario. Its signal line is below zero, sloping sharply downward, indicating potential new lows.

On the H1 chart, EUR/USD broke through the 1.0864 level and formed a bearish wave structure, reaching 1.0815. Today, a corrective move towards 1.0860 (testing from below) is likely. Once this correction concludes, the pair could resume its downward trajectory, targeting 1.0811. This movement marks the third wave of the downtrend. After reaching this level, another retracement towards 1.0864 is possible. The Stochastic oscillator supports this outlook, with its signal line below 20 and trending upward towards the 50 level.

Conclusion

The EUR/USD pair remains under pressure as the Fed’s cautious stance and global trade tensions bolster the US dollar. Technical indicators suggest further downside potential, with key support levels at 1.0765 and 1.0811. Investors should monitor upcoming economic data and trade developments for additional insights into the pair’s direction.

Source: ACTIONFOREX

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Money markets show investors are priced at about a two-thirds chance of a May interest rate cut of 25 basis points.

"There was no presumption that monetary policy was on a pre-set path over the next few meetings," says the Bank's minutes.

"Saying policy is not on a pre-set path gives the MPC the option to skip a cut at May’s meeting," says Robert Wood, Chief UK Economist at Pantheon Macroeconomics. "The MPC gave themselves the flexibility to skip a quarterly cut. This fits our view; we continue to look for only two more reductions to Bank Rate this year."

With inflation set to reach 4.0% in the coming months, there is a worry at the Bank of England that its existing forecasts for a steady retreat in inflation back to the 2.0% target in 2026 won't transpire.

Unsupportive data and the inflationary nature of a global tariff war will leave the Bank unable to justify a steady pace of cuts going forward.

"It is not a done deal that the BoE will stick to the current path of quarterly rate cuts by lowering rates by a further 25bps in May," says Lee Hardman, FX analyst at MUFG Bank Ltd.

Image courtesy of Berenberg.

Economist Andrew Wishart at Berenberg Bank says the emphasis of the debate has shifted towards the risk that inflation proves more sticky than expected.

"Rate setters need to see a continued decline in underlying inflation to proceed with interest rate cuts," he explains. "But there was “little change in underlying services price inflation between December and January” and household and business inflation expectations have risen."

Berenberg doubts that the downward trend in services price growth that has been in place since late-2023 can continue. Disinflation stopping would prevent further rate cuts.

Wishart looks for another cut in May but warns this could mark the end of the cycle.

Image courtesy of Lloyds Bank.

The March policy decision follows the release of the Bank of England's inflation expectations survey, something it watches closely, which reveals a clear rise in expectations of an inflationary pickup.

One-year inflation expectations surged to 3.4%, up from 3% in November 2024. Two-year inflation expectation rose to 3.2%, up from 2.8% in the previous survey and the long-term inflation expectation (Five Years) rose to 3.6%, up from 3.4%.

Inflation expectations are crucial for monetary policy: if consumers, workers and businesses think inflation is set to rise, they engage in behaviour that fuels inflation.

"What is clearly a concern for the MPC is the rise in inflation expectations, both on the household and business side," says Ellie Henderson, an economist at Investec.

Investec thinks the Bank will cut again in May but acknowledges another big question mark hangs over the meeting that could see that cut being abandoned.

"This is a deeply uncertain time," says Henderson. "The May meeting is also important as we should have more clarity over US trade policy, given President Trump’s threat to impose reciprocal tariffs on April 2."

She says that as events unfold, these forecasts may have to change, as does the Bank’s approach. "The MPC will not just have to be gradual and cautious when it comes to policy decisions, but also flexible, prepared to adapt to the rapidly evolving backdrop."

MUFG thinks that the Bank will still cut rates in May, but the quarterly spell will be nevertheless soon be broken.

This would be in line with current market-implied pricing, where a May cut is priced at a two-thirds chance, but an August cut is at 50/50.

"We expect this probability to be scaled back further unless backed up by more evidence of softening UK labour market conditions, including slowing wage growth in the coming months," says MUFG's Hardman.

"The BoE will deliver another 25bps rate cut in May. We believe there is a higher risk that the BoE could skip a quarterly rate cut in August when there is expected to be bigger inflation overshoot," says MUFG's Hardman.

However, Andrew Goodwin, Chief UK Economist at Oxford Economics, thinks that the bar to abandoning the quarterly pace "is high."

"Bank Rate is still comfortably in restrictive territory, growth is sluggish, and the BoE's measure of underlying pressure continues to cool, giving the MPC reason to cut," he explains. "We think it's very likely there will be another 25bp cut in May and market pricing for that month appears too cautious."

Source: Poundsterlinglive

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Glendon

Cryptocurrency

Bitcoin is holding around 84,000 dollars after a turbulent and disappointing session for investors, marked by President Trump’s statements at the Digital Asset Summit, which did not meet the high expectations of the market.

The impact of Trump’s statements on the price of Bitcoin

On March 19, bitcoin experienced significant volatility. Its price first reached an intraday high of 87,453 dollars in the early hours of the trading session.

However, this increase was short-lived, as the price quickly fell back to 83,655 dollars following President Trump’s video intervention that occurred yesterday, March 20, during the Digital Asset Summit.

Before his intervention, social media, particularly X (formerly Twitter), was buzzing with promising rumors. Some mentioned a possible announcement of tax exemption on capital gains for certain cryptocurrencies, while others spoke of a favorable statement regarding a U.S. strategic reserve of bitcoin. These speculations contributed to the market’s momentary euphoria.

However, the reality turned out to be less spectacular than expected. Trump merely reiterated his promise not to sell the bitcoins confiscated by the government and urged Congress to legislate quickly on stablecoins.

His most positive statement remains his stated ambition: “Together, we will make America the undisputed superpower of Bitcoin and the global capital of crypto.”

Market Perspectives and Expert Recommendations

The crypto markets reacted according to a classic pattern of ‘buy the rumor, sell the news.’ Many traders had anticipated a major announcement by presidential decree in favor of bitcoin, and when it became clear that this would not be the case, a wave of selling ensued.

According to Aksel Kibar, founder of Tech Charts LLC, bitcoin could still experience a correction down to 73,700 dollars. In an analysis shared on X, he notes:

“The long-term BTC/USD chart shows that a pullback to the 73,700 dollar mark still seems plausible. The course of events will determine the price evolution in the coming months.“

This strength of bitcoin observed before the highly anticipated Digital Asset Summit (DAS) can be explained not only by the anticipation of Trump’s statements. From March 19, crypto and the market as a whole had already begun to react positively to the release of the FOMC (Federal Open Market Committee) minutes and Jerome Powell’s announcements, the chairman of the Federal Reserve.

Indeed, during the publication of the FOMC minutes, Powell confirmed that the Fed’s quantitative tightening would slow and that two interest rate cuts remained possible in 2025.

Arthur Hayes, co-founder of BitMEX, hailed this announcement as a sign that quantitative tightening would essentially end on April 1. However, he tempers this optimism by warning investors:

“Has BTC reached its low point at 77,000 dollars? Possible, but speculators may still struggle to convert Jay [Powell] to Team Trump, so stay nimble and have the necessary liquidity.“

A Promising but Uncertain Future

As analysts report, most of the recent fluctuations in bitcoin prices have been driven by activity in the futures markets. However, a positive sign appears with the re-emergence of the bitcoin premium on Coinbase, suggesting a possible return of demand in the spot market.

This premium, which indicates a higher bitcoin price on Coinbase than on other exchange platforms, is generally interpreted as a positive signal of American institutional and retail interest in the King of cryptos, which could support its upward trajectory in the medium term.

In summary, bitcoin is currently navigating through turbulent waters between political optimism and economic realities. While Trump’s commitment to the crypto sector and the Fed’s monetary easing are favorable winds, experts still recommend maintaining a measured approach in the face of potential market turbulence in the coming weeks.

Source: CryptoSlate

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Britain's government gets another report card on its efforts to curtail spending while Germany, in contrast, goes for a final vote on its big borrow-to-spend splash on Friday.

The UK government finances report should show how deeply in the red the government is as the financial year draws to a close and just days ahead of finance minister Rachel Reeves's budget update on March 26.

Government departments have been tightening their purse strings to help Reeves meet her budget reduction goals, which have been trammelled by rising gilt yields and a slowing economy. Morning Bid: UK Red Tape, Red Ink, and Rachel's Rules_1

Morning Bid: UK Red Tape, Red Ink, and Rachel's Rules_1

Rise in UK borrowing costs means Rachel Reeves is unlikely to meet her fiscal rule of balancing day-to-day spending

Last week, British Prime Minister Keir Starmer pledged to "hack back the thicket of red tape" suffocating the economy and the British government abolished NHS England, bringing the health service back under direct ministerial control.

Reeves has set herself an ambitious target of balancing day-to-day spending and tax revenues by the 2029-30 financial year. She is expected to announce she has rebuilt a 9.9 billion pound ($12.83 billion) fiscal buffer, Bloomberg reported on Wednesday citing an unnamed source.

In Germany, on the other hand, investors have been celebrating the almost certain passage on Friday of legislation to create a 500 billion euro ($542 billion) fund for infrastructure and higher spending on defence.

The plan was approved this week in the lower house Bundestag, giving conservative leader and chancellor-in-waiting Friedrich Merz a huge boost and investors reason to hope for a recovery in Europe's largest economy.

The legislation goes today to the Bundesrat upper house but appears certain to pass there.

Morning Bid: UK Red Tape, Red Ink, and Rachel's Rules_2

A line chart of German 10-year bond yields

Meanwhile in broader markets, Wall Street's bullish momentum earlier this week, inspired by Federal Reserve Chair Jerome Powell's view that the economy is in good shape and tariff-related price rises will be transitory, seems to have fizzled out.

the S&P 500 shedding about two-tenths of a percent,

Treasuries and the dollar are up, indicating a broader "risk-off" tone at play, as is gold, which has already rocketed 16% this year to record highs.

Policymakers across the globe have struck a cautious note in a week filled with central bank meetings as uncertainty in global economics and politics grew. The U.S. Federal Reserve, the Bank Of Japan and the Bank of England all held rates steady.

Key developments that could influence markets on Friday:

DATA: UK public finances (February), Euro zone current account (January), Euro zone consumer confidence (March, flash estimate), Canada retail sales (February)

SPEAKERS: Chicago Fed President Austan Goolsbee, New York Fed President John Williams, European Central Bank's Jose Luis Escriva at an event in Barcelona.

($1 = 0.9221 euros)

($1 = 0.7719 pounds)

Source: Reuters

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Risk Warnings and Disclaimers

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Warren Takunda

Economic

Businesses across major economies including the EU are expected to cut back on investment plans due to increased uncertainty.

In particular, this climate has been created by the trade policies of the Trump administration in the US, which currently affect third-country imports as a broader trade war is shaping up.

According to the latest report from Oxford Economics, trade policy uncertainty alone is predicted to dramatically cost the global economy, mainly due to a drop in investments.

The report examines four possible scenarios to see what impact trade policy uncertainty could have on investment and consequently on the global economy.

“Investment is markedly weaker this year, with an undershoot of about 4% in the US and China, and about 2% in the Eurozone and UK,” Senior Economic Advisor Michael Saunders and Lead Economist Dr Daniel Harenberg wrote in the report.

In 2023, business investment came to levels equal to 22% of GDP in China, 15% in the US, 12% in the Eurozone, and 10% in the UK. The predicted undershoots would produce a significant but not devastating effect on GDP growth.

The report said that the effects of uncertainty are in addition to the direct effects of higher tariffs, which themselves are likely to lower growth while lifting inflation.

Escalating trade tensions further, US President Donald Trump has also proposed a 200% tariff on EU alcohol imports, a threat he said would remain until the EU removed a 50% duty on US-made whiskey. The European Commission is threatening countermeasures on up to €26bn worth of US goods.

Meanwhile, the White House is closely watching the EU’s application of its digital competition laws. The US could hit back if the bloc decides to fine one of the major American tech companies like Apple or Meta.

Why does trade policy uncertainty impact business investments?

According to a previous study by Oxford Economics published at the beginning of March, the uncertainty around trade alone could hit the eurozone's GDP by 0.2% over the next 12 months, with a drop in investment driving the decline. Oxford Economics found that small countries, which are more open to trade, are going to be hit the hardest, including Luxembourg, Slovakia, and Bulgaria. GDP could decline by around 0.8%-1% within two years in these member states.

In terms of larger EU economies, Belgium and Italy will be among the most severely impacted nations, according to the study.

Exporters to and from the US will be more cautious, noted the current report, adding that “even if high US tariffs encourage import substitution in the US, firms in these sectors might be reluctant to invest and expand capacity”, pointing to the quickly changing policies.

Uncertainty in such a key market for EU exporters, particularly carmakers, will induce a cautious business approach. Firms are holding back on investment decisions that are difficult and costly, including hiring, spending on research and development, and new market entry.

Meanwhile, consumers may also delay plans to purchase a house or major durable goods.

In turn, the lack of spending from businesses and consumers leads to fewer services and goods being sold. Lower demand contributes to lower business confidence, and the combined effect results in the economy contracting, sparking a vicious circle of declining employment and further deteriorating demand.

What are the possible outcomes of the current uncertainty?

According to Oxford Economics, trade uncertainty has four different possible outcomes on private business investment and global growth.

In the case of a rapid decline in uncertainty, which fully disappears by the end of the year, investments are expected to recover next year. This could happen if, for instance, the ongoing tariff threats and negotiations simply result in a one-off reset to a new higher tariff level, with no further changes on the cards. In this case, the currently forecasted drop in investments across the US, China, the UK and the EU would recover in 2026 and later years.

If, on the other hand, a near-term rise in tariffs is followed by an extended period of uncertainty, declining only by 2028, “it will cause greater economic harm beyond this year,” the authors said.

Investment could collapse by about 10% in the US and China, 6% in the Eurozone, and 4%-5% in the UK.

The third and fourth scenarios in the report look at the effects of trade policy uncertainty gradually falling to a still relatively high level or not falling at all, with uncertainty remaining at its current level until the end of 2029.

If it remains at its heightened levels over the next few years, “it would create a sizeable drag on global investment, reducing it by 10%-20% across major economies over several years,” said the report.

According to Oxford Economics, the worst-case scenario would result in a 20% drop in investments in China, 14% in the US, 10% in the Eurozone, and 7% in the UK by 2029.

“In this case, either a course correction - to reduce trade policy uncertainty - or major support from monetary and/or fiscal policies would probably be likely to avoid prolonged weak global growth,” said the report.

Source: Euronews

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Hotter-Than-Expected Core Inflation in Japan Sparks Rate Hike Talk, Threatens Crypto

U.S.-Japan 10-year yield differential. (TradingView/CoinDesk)

Source: CoinDesk

Ethereum Supply on Exchanges is Alarming! Lowest Level in Last 10 Years! What Does It Mean for Eth Price?

Source: CryptoSlate

Eurusd Loses Momentum As Fed Bolsters The US Dollar

Key drivers behind EUR/USD movement

Technical analysis of EUR/USD

Conclusion

Source: ACTIONFOREX

Bank of England Running Out of Road

Image courtesy of Berenberg.

Image courtesy of Lloyds Bank.

Source: Poundsterlinglive

Bitcoin Falls After Trump’s Intervention at The Digital Asset Summit: Should We Be Worried?

The impact of Trump’s statements on the price of Bitcoin

Market Perspectives and Expert Recommendations

A Promising but Uncertain Future

Source: CryptoSlate

Morning Bid: UK Red Tape, Red Ink, and Rachel's Rules

Rise in UK borrowing costs means Rachel Reeves is unlikely to meet her fiscal rule of balancing day-to-day spending

A line chart of German 10-year bond yields

Source: Reuters

Lengthy Trade Wars Could Cut Global Investment by One-Tenth, Warn Economists

Why does trade policy uncertainty impact business investments?

What are the possible outcomes of the current uncertainty?

Source: Euronews

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