FX market outlook

FX market outlook

Posted on Thursday, March 16 2017 at 9:27 am GMT+0000

Euro gains on positive outcome of Dutch elections; Dollar extends post-FOMC losses; gold rallies.

The US dollar remained weak against its major counterparts during the Asian session after making big losses on Wednesday despite the Federal Reserve delivering a rate hike.

Following a two-day meeting, the Fed announced an increase in its benchmark interest rates by 25 basis points to a range of 0.75% – 1.00%. This was widely expected by the markets so the focus was on the projection for further hikes. It was apparent in the statement issued after the FOMC meeting that the US central bank would follow a gradual policy transition and there wasn’t a big change in the dot plot.

The dots did not suggest that future rate increases would accelerate and it seemed the Fed was to remain on pace with 3 hikes this year in total. This disappointed markets and a sell-off in the dollar ensued. The dollar index tumbled to the lowest level since February 20, while the yield on the 10-year US Treasury note fell, erasing gains made over the past week.

The greenback slid against the yen to reach an Asian session low of 113.14 and continued lower going into the European session, despite the diverging monetary policies of the Bank of Japan and the Fed. The BOJ announced today that it kept policy unchanged and will continue with stimulus.

In other news, the Australian jobs report released today showed an unexpected rise in the unemployment rate which reached the highest in 14 months at 5.9% and was worse than predicted. The jobs report indicated that wage growth was likely to remain subdued for a number of years and that there was considerable slack in the labour market. The aussie fell after the data to trim some gains made after surging against the US dollar post-FOMC but soon stabilized to last trade around the 0.7700 level.

The euro was lifted against the dollar after the not-so-hawkish Fed yesterday and broke above the key 1.0700 level. The single currency received an added boost on the positive outcome of the Dutch elections that took place on Wednesday. Euro / dollar hit a 5-week high of 1.0745 early in the Asian session.

The pound consolidated gains made against the dollar after rising to a post-FOMC high of 1.2308.

Gold benefitted from the dovish Fed and a slide in the dollar and prices rallied to their highest level in more than a week. The precious metal last traded at $1228.75 an ounce.

Oil prices opened higher in Asia, extending gains made yesterday. Brent crude rose to $52.63 a barrel and WTI oil reached $49.59 a barrel. This is the third straight day of gains following recent inventory reports that showed a draw down in US stockpiles.

The economic calendar for the rest of the day is quite busy, with two central bank meetings – Bank of England and Swiss National Bank – and key economic data on Eurozone inflation and US jobless claims. Building permits data and the Philly Fed manufacturing index are also due out of the US.