Hawkish FED strengthens the Dollar

Daily Update - 22nd February 2018

Yesterday’s Market

• EUR ECB Monetary Policy’s ECB Meeting, Markit Manufacturing PMI
• GBP ILO Unemployment Rate, Claimant Count Rate, Inflation Report Hearings
• USD Markit Manufacturing PMI, FOMC Minutes

Yesterday’s Explained

On Wednesday, euro declined as the dollar built on its recovery from last week’s three-year lows, after minutes of the latest Federal Reserve meeting affirmed expectations of further rate increase this year. The Federal Reserve’s rate-setting committee showed more confidence in the need to keep raising interest rates at its last policy meeting, with most believing that inflation would perk up. It added that recent information received by voting members on inflation along with prospects for a continued solid pace of economic activity provided support for the view that inflation would likely move up in 2018. The single currency initially gained against the U.S. dollar for a short time after the release of minutes from the U.S Federal Reserve’s January policy meeting, but reversed course quickly.

The British declined against the dollar on Wednesday as pound was knocked lower by data showing an unexpected tick-up in the jobless rate, and by news that more than 60 conservative lawmakers had written to the prime minister demanding a quick, clean break from the European Union. This is adding pressure on the prime minister before her ministers meet to decide Britain’s negotiating position. Member of the hard-line European Research Group, a faction in her conservative party, wrote the letter days ago and have been adding signatures to bolster demands for Britain to toughen its position in talks to unravel more than 40 years of union.

 

Today’s Market

• USD FOMC Member Kashkari Speech, Continuing Jobless Claims, Initial Jobless Claims
• GBP Gross Domestic Product
• EUR ECB Monetary Policy Meeting Accounts, IFO Current Assessment

Today’s Focus

On Thursday, the UK will release its second estimate of GDP, expected unchanged at 0.5% and will therefore have a limit impact on the pair, unless it comes with a notable divergence. Investors will be looking ahead to a second reading on British growth data for further hints on the health of the economy and the likelihood of the Bank of England raising interest rates this year.

The minutes from the ECB's January policy meeting will be published on Thursday. The ECB said it will keep its €2.5 trillion stimulus program in place for as long as needed at that meeting, and stated that there are "very few chances" that it will change interest rates this year.

From US, Counting Jobless Claims will be released by the US Department of Labor which measures the number of individuals who are unemployed and are currently receiving unemployment benefits. It presents the strength in the labor market.