It’s all about the Dollar – Will it be 3 or 4?

Earlier in the Day:

There were no material stats released through the Asian session this morning to provide direction to the majors, with focus shifting towards today’s FOMC monetary policy decision and more importantly, Jerome Powell’s first press conference as FED Chair and the release of the FOMC economic projections.

In spite of Tuesday’s Dollar rally, the Dollar Spot Index gaining 0.68% through the day, there was some pullback through the session this morning, which saw the Asian major currencies recover some lost ground through the session.

The Japanese Yen was up 0.06% to ¥106.47 against the Dollar at the time of writing, with the Aussie Dollar up 0.17% to $0.7696. The Kiwi Dollar struggled in spite of a softer U.S Dollar, falling 0.11% to $0.7176, Tuesday’s disappointing Global Dairy Trade Index figure weighing, while a jump in visitors to New Zealand and a surge in credit card spending, according to minor data released early in the morning, provided little support.

In the equity markets, while Japanese markets were closed, the ASX200 managed to recover some of Tuesday’s losses, closing out the day with a 0.23% gain, while the Hang Seng and CSI300 were up 1.1% and 0.65% respectively at the time of writing.

The markets have largely priced in a rate hike for later today and, while there’s been plenty of conjecture over the likely number of hikes for the year, there may be no surprises if 4 hikes are pencilled into the economic projections.

The Day Ahead:

Following some disappointing data out of the Eurozone on Tuesday, there are no material stats scheduled for release this morning to provide support, with direction through the early part of the day coming off the back of a softer U.S Dollar than any material shift in sentiment towards monetary policy divergence.

As things stand, while ECB members may be talking of a possible review of deposit and interest rate policy, monetary policy divergence favours the U.S Dollar, with economic growth prospects also looking more positive for the U.S Dollar than the EUR, assuming a trade war doesn’t materialise.

Draghi’s dovish commentary of late, coupled with the softer inflation numbers suggest that the talk of a shift in ECB focus towards interest and deposit rates may be premature.

At the time of writing, the EUR was up 0.17% to $1.2263, with direction through the day hinged on this afternoon’s FOMC economic projections and interest rate decision.

For the Pound, it’s another big day ahead, with UK unemployment and wage growth figures scheduled for release. As the markets prepare for tomorrow’s BoE monetary policy decision, wage growth and unemployment numbers will need to be supportive for the BoE to deliver a hawkish tone tomorrow, as inflation continued to overshoot the BoE’s 2% target in February, according to figures released yesterday morning.

Softer wage growth or an unexpected rise in claimant counts could temper the market expectation of a rate hike in May, though how much of an impact this will have on the Pound remains to be seen, with progress on Brexit continuing to be the key driver.

At the time of writing, the Pound was up 0.10% to $1.4012, with the Pound likely to give up ground through the day, while a bounce back could be on the horizon with tomorrow’s policy decision and the Euro Summit on Friday there for the markets to consider through the remainder of the week.

Across the Pond, economic data out of the U.S is limited to February’s existing home sales and 4^th quarter current account figures. The data is unlikely to have a material impact on the Dollar through the early part of the U.S session, with the markets focused on the FOMC monetary policy decision, press conference and the economic projections.

With the probability of a rate hike sitting above 90%, it will boil down to the economic projections and how many rate hikes are projected for the year, though Jerome Powell’s first press conference will also garner plenty of attention as the markets look to get a sense of how much more hawkish he will be compared with his predecessor.

At the time of writing, the Dollar Spot Index was down 0.11% to 90.296, recovering from a morning low 90.249, with even President Trump having to take a backseat this afternoon.