15.03.2017 Daily Market Analysis

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The US dollar (USD) was back in the driving seat on Tuesday, as it edged higher against the major currencies ahead of the FOMC (Federal Open Market Committee) meeting today.

The US Fed is all set to hike rates for the first time this year, and instead of rising, US Treasury-yields fell. Despite this, investors’ appetite for the USD enabled the currency to post gains across the board. The market has fully priced in a rate hike today and the Fed Fund Futures are now pricing in a 60% chance of a June rate hike and an 80% chance of a September rate hike. The rate hikes are expected to accommodate the ambitious spending plans of the Trump administration, but investors are only pricing in two rate hikes for the year. With all this in mind, Fed Chair Yellen’s speech will carry much significance today. If she emphasizes the need for further tightening, the USD will rally; and if she calls for a balanced approach, by suggesting that the Fed will have to watch economic conditions before any decision is made, USD gains will be curtailed. In addition, the market will want to sell the USD currency if she is vague or ambiguous.

Meanwhile, the euro (EUR) was pressured yesterday as weak data and political concerns continued to weigh down on it. The German ZEW Economic Sentiment printed 12.8, weaker than the expected 13.2, while month on month Industrial production came in at 0.9%, also weaker than the expected 1.2%. Investors also sold the euro ahead of elections in Netherlands, which could influence upcoming elections in the rest of the Eurozone. An unlikely win by the anti-EU parties would inspire or even influence French elections, where far left candidate Le Pen is expected to get a boost, as scandal-ridden candidate Francois Fillon is put through formal investigations.

In other currency news, the British pound (GBP) was also pressured across the board as Brexit headlines crossed the wires. The House of Commons voted to overturn the amendments on the Brexit bill, sending it back to the House of Lords who passed the bill that would allow Prime Minister Theresa May to trigger Article 50. The Brexit will now be formalized and according to May, the UK government is on track to do this before the end of March. Away from the Brexit, today, the UK will release Employment data, with investors expecting upbeat numbers.

All commodity currencies were pressured by the USD, with the Canadian dollar (CAD) leading the losses as crude oil prices tumbled. The Australian dollar (AUD) also drifted lower but the New Zealand dollar (NZD) remained unchanged as Current Account numbers came in largely as expected at -2.34B. There will be no major data from Canada and Australia today, but New Zealand will release quarter on quarter GDP numbers.