Dollar Tumbles After a Dovish FED Statement

Daily Update - 22nd March 2018

Yesterday’s Focus

• GBP Claimant Count Change, ILO Unemployment Rate, Average Earnings & Public-Sector Net Borrowing
• EUR Non-Monetary Policy ECB meeting & 10 Year Bond Auction
• USD FOMC Rate Decision, Statement, Economic Projections & Press Conference

Yesterday’s Explained

To recap the day’s events, the Federal Open Market Committee on Wednesday announced it would raise interest rates 25-basis points or 0.25 percent, its first hike in 2018. Additionally, it upgraded its outlook for the U.S. economy, citing job gains and low unemployment. Although the central bank expects gradual rate hikes over the long-term, its forecast remained at three hikes in 2018.

The dollar’s initial rally failed to gain traction because ahead of the Fed’s announcement, speculators were probably betting on as many as four rate hikes this year. The dollar’s weakness could also be a sign that investors are betting on improving global economic growth and the possibility that other major central banks would scale back their monetary stimulus and raise rates gradually themselves.

Today’s Focus

• EUR Manufacturing and Services PMI
• Bank of England Official Bank Rate, Monetary Policy Summary, MPC Official Bank Rate Votes

Today’s Market

It’s been quite a week for the EUR, with disappointing economic data released earlier in the week being of little influence as the FED hiked rates but maintained its 3-rate hike projection for the year, delivering yet another shift in monetary policy divergence that had begun to favour the U.S Dollar.

Economic data scheduled for release this morning includes March’s prelim private sector PMI figures out of France, Germany and the Eurozone, together with the ECB’s economic bulletin and Germany’s Ifo Business Climate Index.

Focus will likely be on Germany’s manufacturing PMI and Eurozone services PMI, with recent weakness in industrial production and factory orders likely to be reflected in this morning’s numbers that could provide some downside for the EUR.

For the Pound, it’s the main event of the week, with February’s retail sales figures a prelude to the BoE’s monetary policy decision. With retail sales forecasted to be a positive for the Pound, we will expect the Pound to be on the rise through the early part of the day. Market expectation of the BoE taking a particularly hawkish stance on policy and raise the prospects of a May rate hike the key driver, supported by the jump in wage growth and fall in the UK unemployment rate to 4.3% in January, according to figures released on Wednesday.