Forex Market Forecast for March 2023

The current talk surrounding the forex markets has been centered on recent data releases regarding easing inflation. However, the latest reports in Europe and North America have suggested central banks’ fight with soaring prices may not yet be over due to hints that the rate of price increases could remain stubborn. The familiar themes of last month ring true again in March:

• Will the Fed continue to slow the pace of rate hikes, and will other central banks follow suit — this will be a central theme to watch in March.
• If inflation remains stubborn, we may begin to hear talk of central banks sticking to their current rate hike path.
• Unemployment will again be key — so far, the labour market in the US and Europe has remained robust. Still, with lay-offs in the tech sector continuing, it is essential to watch for a potential rise in unemployment.

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US Dollar

Despite weakening at the back end of last year and into January this year, the US dollar has made solid gains so far in February. If inflation data remains hot, or at least stubborn, expect the dollar to continue to rise in March. In its latest FOMC minutes, Fed policymakers were optimistic about a decision to further slow the pace of rate hikes. Still, they also suggested that curbing unacceptably high inflation would be the “key factor.” Inflation everywhere remains the key data point to watch.

Key Levels

• EURUSD: Higher – 1.0800, Lower – 1.0480
• GBPUSD: Higher -1.2406, Lower – 1.1840
• USDJPY: Higher – 138.00, Lower – 130.51

Euro

A resilient economy and jobs market accompanied by hawkish central bank rhetoric means a potentially stronger rate hike path for the ECB compared to what was forecast a month ago. As a result, the euro could rise against risk-off currencies during March. Deutsche Bank believes the ECB will raise rates by 50 bps in March and May, followed by a 25 bps hike in June, compared to their previous forecast of a 50 bps hike in March and a final hike of 25 bps in May.

Key Levels

• EURUSD: Higher – 1.0800, Lower – 1.0480
• EURGBP: Higher – 0.8960, Lower – 0.8680

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British Pound

Similarly to the EU, recent positive data from the UK has boosted talk of further rate hikes by the Bank of England, which is positive for the pound. Positive economic data increases the likelihood of further hikes and could provide the GBP with a boost after a sideways move against most other major currencies in recent weeks.

Key Levels

• EURGBP: Higher – 0.8960, Lower – 0.8680
• GBPUSD: Higher – 1.2406, Lower – 1.1840

Japanese Yen

Despite strengthening from around October last year to mid-January this year against the US dollar, the Japanese yen retraced in recent weeks. BoJ board member Naoki Tamura recently said that the central bank is currently at a stage where it must closely monitor whether the country can achieve a positive cycle of rising salaries and inflation. If the rhetoric around further rate increases continues, expect to see the USDJPY continue to climb further in March.

Key Levels

• USDJPY: Higher -138.00, Lower – 130.51
• EURJPY: Higher – 144.25, Lower – 137.40

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