#macro-tightening

#macro-tightening

The Bank of Japan's loose monetary policy has turned the yen into the world's cheapest and most reliable funding currency, creating a publicly subsidised funding pipeline for bankers.

UK businesses face some of the highest electricity costs in Europe, a situation that has worsened following the recent surge in global gas prices linked to geopolitical tensions in the Middle East.

High energy prices are kryptonite for the housing market. Affordability, especially for those first-time home buyers, is now an elusive dream until oil prices come down and interest rates come down.

"Oil prices are higher again this morning, but Treasury yields are lower as the risks to economic growth begin to take precedence over the risks to inflation," Oxford Economics said in a note on Monday.

Services experienced the highest annual increase at 3.4%, followed by food, alcohol, and tobacco at 2.5%. Non-energy industrial goods saw a more modest increase of 0.7%. Meanwhile, energy prices fell by 3.1% over the month, which helped to temper overall inflation pressures.

Markets remain fragile amid persistent geopolitical tensions in the Middle East, which have pushed oil prices higher and revived concerns about inflation in Europe. While interest rates are expected to remain unchanged, attention could turn to the ECB's forward guidance and assessment of energy-driven price risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the US economy are uncertain, the central bank said in a statement announcing its policy decision and referring to its Federal Open Market Committee.

The dominant force in play remains the Middle East conflict, which has kept oil prices elevated and inflation expectations firm. Reports that Washington is assembling a coalition to escort vessels through the Strait of Hormuz could offer some relief for the oil market and could weigh on the dollar.

The European Central Bank (ECB) held its key interest rates unchanged following the February meeting of the Governing Council, in line with Cebr projections. This marks the fifth consecutive hold, despite a below-target inflation reading of 1.7% in January, the lowest level since 2021. The decision to hold rates also comes despite a recent Euro rally against the dollar, which is expected to add disinflationary pressure through cheaper imports and weigh on growth by making the bloc's exports more expensive.

With 2-year gilt yields hitting December highs due to a 40 per cent surge in UK gas prices and oil nearing $80, the Bank of England faces a significant inflationary shock. High-street banks are no longer competing on price but are instead protecting margins against rising swap rates.

The resilience of gold above $4,800 per ounce at this stage reflects a delicate and complex balance between traditional supporting factors and emerging pressures-one that cannot be superficially interpreted or reduced to the movement of the dollar alone. It is true that the U.S. dollar's retreat from its recent peaks, after failing to sustain its recovery momentum from a four-year low, provided gold with a short-term breather and attracted some buyers.