FX market outlook

FX market outlook

Euro gets added boost on ECB official’s comments; dollar holds post-FOMC losses.

The euro was one of the top performing major currencies in the Asian session today after being lifted on comments by a European Central Bank official who hinted at a rate increase. The US dollar remained weak in the wake of the FOMC and is on track to end the week with sharp losses against the yen.

The euro rose against the dollar in Asian trading and reached a more-than 5-week high of 1.0781 on hawkish comments from ECB officials. Ewald Nowotny, who is an ECB governing council member, indicated in a newspaper interview yesterday that the ECB is gradually going to normalize its policy. He suggested that the central bank could probably increase interest rates first, followed by a tapering of asset purchases.

The euro is up for the third consecutive day against the dollar, after rising on the positive outcome of the Dutch elections on Wednesday.

The pound held onto gains after surging on Thursday following the Bank of England policy meeting which revealed that MPC policymaker Kristen Forbes voted for a rate hike. This surprise dissenting vote lifted sterling against the dollar to reach 1.2376 late yesterday and it consolidated during Asian trading today.

The dollar wallowed near 2-week lows against the yen and is poised for its biggest weekly loss in more than a month. Dollar / yen has been trading in a range between 112.89 and 113.56 since a sharp tumble on Wednesday following a not-so-hawkish Federal Reserve and its stance for a gradual rate hike path rather than a more accelerated one which markets were hoping for.

Dollar – denominated gold rose sharply after the Fed decision as the greenback came under pressure. The precious metal rallied to its highest level since March 6 yesterday, hitting $1233.61 an ounce and it consolidated these gains in Asian trading today.

Oil advanced after the FOMC, as it is also priced in dollars. WTI crude remains below the key $50 a barrel level to trade around $48.80 in the Asian session today. But it is set to record weekly gains for the first time in three weeks.

The economic calendar is relatively light for the rest of the day. Focus will be on US releases, which include industrial production data and the preliminary University of Michigan consumer sentiment survey. Meanwhile the G20 meeting of finance ministers in Germany begins today. It would be interesting to watch out for any comments from officials.