FX market outlook

FX market outlook

Posted on Tuesday, March 28 2017 at 8:20 am GMT+0000

Dollar stabilizes after drop to 4-month low against yen; pound in focus ahead of Brexit talks commencing.

The dollar stabilized today after sliding to a four-month low against the yen in reaction to news of the setback on healthcare reform. Investors have no shifted their attention to US President Donald Trump’s other policies with regards tax cuts and infrastructure spending.

The market’s disappointment eased as focus now turns back to US economic growth showing signs of improvement and the Federal Reserve clearly on a path of rate hikes, albeit gradual. Chicago Fed President Evans, speaking yesterday, reiterated his view that there would be 2-3 interest rate increases for 2017, although he was still cautious surrounding the inflation outlook with concerns that the underlying inflation rate would not reach 2% until 2019.

The interest rate differentials between the Fed and other major central; banks as well as evidence that the US economy is picking up, is helping support the dollar.

The dollar index edged higher today to 99.226 after falling to a 4-1/2-month low on Monday. The U.S. 10-year bond yield moved off a 1-month low on Monday, and rose to 2.383% in Asian trading today.

The dollar edged slightly higher from its lowest level since November against the yen and rose to a session high 110.82 yen.

The euro was steady around $1.0860 after testing a four-month high yesterday.

Sterling fell from a 7-week high hit yesterday and was little changed around $1.2555 in Asia today. Focus is on the pound a day before UK Prime Minister Theresa May will formally trigger the start of two years of Brexit negotiations.

In commodities, gold was steady around $1,252 an ounce after hitting a one-month-high on Monday.

The return of slight risk appetite helped oil prices bounce. WTI crude was up 0.5% to rise near $48 a barrel following a 0.5% drop on Monday.

The economic calendar is relatively light today with focus mainly on the US consumer confidence report from the Conference Board. Meanwhile, a few Fed speakers will also attract the market’s attention. Those scheduled to make appearances today are: Fed Chair Janet Yellen, Esther George, Robert Kaplan, and Jerome Powell.