FX market outlook

FX market outlook

Dollar slides as investors fear delay in Trump fiscal plans.

Risk aversion in the markets led to safe haven demand, helping the yen strengthen and the dollar index fall below 100. Sterling was one of the best performing major currencies after UK inflation rose to the highest in over three years.

The dollar fell to its lowest level since November 23 against the yen, reaching 111.25 in the Asian session.

The dollar index, which gauges the greenback against a basket of six major currencies, slid to 99.72, trading below 100 for the first time since early February. Benchmark US Treasury yields fell to 3-week lows.

There is uncertainty in the markets because investors are wary of US President Donald Trump’s growth plans. The Dow Jones and the S&P 500 lost more than 1% on Tuesday, in their worst performances since before the US elections on fears that Trump would have a hard time delivering his promised tax cuts and deregulation.

The euro consolidated gains at 7-week highs against the dollar on the possibility of a Le Pen defeat in the French presidential elections after the first televised debate of candidates indicated centrist Emmanuel Macron was the front-runner. The latest polls also show he has slightly increased his lead on far-right leader Le Pen in the first round of the elections. Expectations of the ECB unwinding its quantitative easing is also helping the euro to appreciate.

The euro rallied to $1.0818, the highest level since February 2 and consolidated gains during today’s Asian session.

UK inflation data released on Tuesday showed that consumer prices in Britain rose at the fastest pace in over three years to overshoot the Bank of England’s 2% target. This raises speculation that the BOE would start to raise interest rates if inflation keeps rising.

The pound rose to a 3 ½ week high of $1.2505 in Asian trading.

The antipodean currencies and Canadian dollar were the few major currencies that underperformed against the greenback since they are commodity-related and so are impacted by overall risk aversion and lower commodity prices.

Gold rose for a sixth trading day due to the softer dollar and risk-off, reaching a 3-week high of $1248.91.

Oil prices declined on concerns about rising supplies, as markets shrugged off the latest talk by OPEC that it was looking to extend output cuts beyond June. WTI fell to its lowest since November to $47.78 per barrel, while Brent slid to $50.51 a barrel.

Focus will be on the EIA crude oil inventory report due later today, which could create further volitivity for oil prices. Aside from this report, the economic calendar is relatively quiet for the rest of the day.