FX market outlook

FX market outlook

Posted on Tuesday, March 21 2017 at 9:10 am GMT+0000

Euro rallies after French debate; dollar under pressure after Fed speakers.


The dollar remained soft in Asian trading today as it came under pressure from falling US Treasury yields following not-so-hawkish speeches by Fed officials on Monday.

Chicago Fed President Charles Evans quashed hopes for a faster pace of rate hikes. He reiterated the Fed’s message from last week’s FOMC meeting that the pace of interest rate increases will be gradual and the projections were for a total of three hikes this year. Meanwhile, Minneapolis Fed President Neel Kashkari, who was speaking on CNBC TV yesterday, said that there was no urgency to raise rates and that he would like to see more inflation in the US economy. Kashkari voted against a rate hike in the latest FOMC meeting on March 15 when the Fed raised rates by 25 basis points.

The dollar may come under volatility as more Fed speakers are due to speak later today. This includes New York Fed President William Dudley, Boston Fed President Eric Rosengren, Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester.

Disappointing Fed-speak brought down the US 10-year Treasury yield to a 2-week low of 2.46%, helping weaken the dollar against the yen in early Asian session trading, reaching a 3-week low of 112.25, before recovering to 112.85.

The televised French presidential candidate debate on Monday helped fuel the euro higher after it was evident that centrist Emmanuel Macron had a lead over far-right leader Marine Le Pen. The euro rose to a 6-week high of 1.0797.

Sterling consolidated after Monday’s drop below the key $1.2400 level. The pound fell from a 3-week high $1.2435 on news that UK Prime Minister Theresa May will trigger Article 50 to start official Brexit talks on March 29. UK inflation data for February will come into focus today.

In other news, the Reserve Bank of Australia published the minutes of its latest policy meeting today and signaled its concern over the nation’s overheated housing market. As a result, the aussie fell against the greenback after the minutes, to reach as low as $0.7698.

In commodities, gold fell on profit-taking after reaching a 2-week high on Monday. The precious metal slipped by around half a percent to reach $1,226.76 an ounce.

Brent crude oil bounced higher towards $52 a barrel while WTI oil reached $49.30 a barrel.

The main economic releases to watch out for today include UK CPI data and Canadian retail sales numbers. The main events include a speech by Bank of England Governor Mark Carney and speeches by Fed officials.