FX market outlook

FX market outlook

Euro recovers as French election concerns ease; dollar steadies after drop following FOMC minutes.

The US dollar fell sharply after the release of the FOMC minutes late on Wednesday. Despite saying that a rate hike would be appropriate ‘fairly soon’, the minutes of the January 31- February 1 Fed policy meeting did not pinpoint a March hike.

Since the markets did not view the minutes as hawkish as was hoped for, the dollar was sold off, and it fell below the key 113-yen level briefly.

In the minutes, there appeared to be a lack of urgency for a rate increase and most FOMC members judged the rate hike path as appropriate. Markets also reacted negatively to the Fed’s concern over a stronger dollar. But US Treasury Secretary Steven Mnuchin talked of the benefits of a stronger dollar in the long-term, suggesting that a higher value of the currency would only be negative in the short term.

Dollar / yen steadied during the Asian session to trade back above the 113 level but gains were limited at 113.44.

The Australian dollar was one of the biggest movers in the Asian session. The aussie fell sharply after some disappointing Australian capital spending data. The fourth quarter Capex fell 2.1% versus a 1% drop expected. Aussie / dollar dipped to a low of 0.7664 from after the data before steadying and moving higher to reach the key 0.7700 level.

The euro was firmer against the dollar today, hitting a session high of 1.0573, after being lifted by news yesterday that eased concerns of a Le Pen victory. Independent candidate Emmanuel Macron struck an alliance with a centrist Francois Bayrou. The news helped push Macron higher in the polls.

Oil recovered after surprise drop in US crude inventories. The API report showed a drawdown last week in supplies. Focus will be on today’s EIA inventory report. WTI oil traded up to $54 a barrel while Brent crude rose above $56 a barrel.

The economic calendar for the rest of the day includes CBI realized sales out of the UK followed by US jobless claims numbers. Market will also pay attention speeches by US Treasury Secretary Steven Mnuchin and FOMC Member Rob Kaplan.