FX market outlook

FX market outlook

Posted on Thursday, June 29 2017 at 8:25 am GMT+0000
Dollar index hits 9-month low; other majors strengthen on hawkish central bankers

The dollar index, a broad measure of the greenback’s strength, hit a nine-month low, as other major currencies strengthened on the back of their central banks preparing to scale back the accommodative monetary policies.

While yesterday’s forex trading session was mostly dominated by central bankers’ speeches, whose comments drove most of today’s Asian session, the rest of the trading day will likely be commanded by a heavy flow of data releases out of both the eurozone and the US.

The dollar held steady against the yen during the Asian session. With a number of US economic data releases, especially the first quarter GDP later in the day, the pair could be volatile move today.

The euro continued to build on this week’s strong momentum against the dollar, hitting a one-year high, amid the hawkish-perceived comments by European Central Bank President Mario Draghi. As the Asian trading session was coming to a close, euro/dollar got a lift on the back of better than expected preliminary Spanish harmonized index of consumer prices (HICP). At 1.6% growth year-on-year, Spanish HICP for June came above the expected level of 1.5%, though below the prior month’s 2%. The pair was last trading at 1.1428, up 0.44% on the day.

The eurozone currency’s strength against the greenback will be further put to a test as Germany releases its flash HICP number slightly later in the day, which will be followed by June’s HICP for the eurozone tomorrow.

The pound also surged against the dollar on the more hawkish tone by Bank of England Governor Mark Carney during his speech in Portugal yesterday. This was a surprise for the markets as the BoE Governor had been maintaining a dovish take regarding the future steps of the UK’s monetary policy. Pound/dollar was last trading at 1.2982, up 0.45% on the day.

The Canadian dollar reacted similarly, surging against the greenback as Bank of Canada Governor Stephen Poloz signaled a high chance of a July rate hike. Dollar/loonie continued to fall during the Asian session, last trading at 1.3005. No significant economic data release is expected out of Canada for the rest of the day.

Looking at commodities, WTI was up 1%, last trading at $45.12 a barrel. Reacting to the dollar weakness, gold inched up during the session, last trading at $1,250.80 an ounce.