FX market outlook

FX market outlook

Posted on Wednesday, February 22 2017 at 9:24 am GMT+0000

Dollar falls against yen ahead of FOMC minutes; euro under pressure on political woes.


The dollar was weaker against the yen as markets await the FOMC minutes due later in the day for clues about the Fed’s views on interest rates. The euro remained under pressure by European political concerns.

The yen was supported by comments from Bank of Japan Governor Haruhiko Kuroda who said that the chance of negative rates is low in the near future. Meanwhile, Japanese Finance Minister Taro Aso made similar remarks.

The dollar slipped to an Asian session low of 113.32 yen from 113.72, but was firmer against the euro which fell to $1.0515 from a session high of $1.0558.

Sentiment for the single currency is negative due to concerns about the anti-European Union rhetoric from French presidential candidate Marine Le Pen, who is leading in the polls ahead of the first round of French elections on April 23.

The Australian dollar was up against the US dollar reaching $0.7697 after touching as low as $0.7666, despite mixed data.  Figures showed wage growth stagnating in the last quarter at 0.5 percent, which was in line with expectations. RBA Governor Philip Lowe spoke yesterday and signaled that he was very reluctant to cut the cash rate in the near future.

The dollar index, which measures the US currency’s strength against a basket of six major currencies, was little changed from yesterday’s six-day high of 101.60 and was last at 101.55.

Gains in the dollar are expected to be limited ahead of the release of the Fed’s minutes from its latest policy meeting. Fed Chair Janet Yellen was quite hawkish in her Congressional testimony last week and several Fed speakers recently have indicated their support for rate hikes soon.

Earlier this week, Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker had indicated that they were comfortable with a rate hike as early as the next Fed meeting in March, although Minneapolis Fed President Neel Kashkari was a bit more reluctant. More Fed speakers will be eyed later in the week. Fed Board Governor Jerome Powell, Atlanta Fed President Dennis Lockhart and Dallas Fed President Robert Kaplan are all expected to make comments.

In commodities, oil prices were supported by news that OPEC producers were sticking to agreed production cuts. WTI oil trimmed Tuesday’s gains during the Asian session today but remained above the $54 a barrel mark.  Gold was down during the session to reach $1,233.43 an ounce.

Looking ahead to the rest of the day, the UK’s second GDP estimate for the fourth quarter and the Eurozone’s final reading for CPI are due to be released during the European session. In the North American session, Canadian retail sales and US existing home sales data will be expected. The main event will be the FOMC minutes, as well as Fed speaker Jerome Powell.