FX market outlook

FX market outlook

Posted on Wednesday, March 29 2017 at 8:24 am GMT+0000

Sterling weakens as UK starts Brexit process, dollar jumps on Fed rhetoric.

The pound was one of the worst performing major currencies during forex trading in Asia today, as the UK is set to trigger Article 50. The dollar was broadly stronger after a report showed US consumer confidence jumped to a 16-year high.

British Prime Minister Theresa May has already signed the letter to initiate the formal process of leaving the EU on March 29, formally beginning two years of talks . Uncertainty surrounding the process weighed on sterling, pushing it lower against the dollar to fall below the key $1.2400 level.

The benchmark US 10-year Treasury yield rose to near 2.42% which provided support for the dollar.  The dollar index, which tracks the greenback against six major rival currencies, edged up higher today to 99.92. A strong reading for US consumer confidence out on Tuesday combined with remarks from Federal Reserve officials helped shift market focus away from Friday’s disappointment regarding the failure to pass the US healthcare bill and this supported the dollar.

The solid US data backed expectations for more rate hikes this year. Meanwhile, Fed Vice Chair Stanley Fischer said yesterday that he sees two more rate hikes in 2017 while Kansas City Fed Chief Esther George called for a further gradual removal of monetary accommodation.

The dollar rose back above the key 111-yen level to a session high of 111.30. The broadly firmer greenback drove the euro back below the key $1.0800.

Gold slid on the stronger dollar to trade around $1250 an ounce.

Oil prices climbed on news of a disruption in Libyan crude output, which offset data showing record US inventories. WTI oil rose to $48.75 a barrel while Brent crude edged up to $51.70 a barrel in Asian trading today.

The economic calendar for today is relatively light. Investors will look out for headlines regarding the triggering of Article 50. An event to be closely watched will be a press conference by European Council President Donald Tusk at 13:45 GMT regarding Article 50.