CURRENCIES: Dollar Rebounds As Focus Shifts To Fed Rate Meeting
March 20 2018 - 9:39AM
Dow Jones News
By Sara Sjolin, MarketWatch
Euro falls after German sentiment data drop more than
forecast
The dollar moved firmly higher on Tuesday, shaking off earlier
weakness as attention shifted from the positive Brexit developments
to the Federal Reserve meeting where rate setters are widely
expected to tighten policy.
The euro declined after economic sentiment data for Germany
dropped more than expected.
What are currencies doing?
The ICE U.S. Dollar Index rose 0.6% to 90.275, rebounding from
its 0.5% loss on Monday
(http://www.marketwatch.com/story/dollar-starts-week-lower-as-british-pound-soars-on-brexit-agreement-2018-03-19).
That loss came as the pound rallied after the U.K. and European
Union agreed on the broad terms for a Brexit transition deal, seen
as lowering the risk of a messy divorce.
The pound weakened on Tuesday, trading around $1.3989 from
$1.4025.
The euro fell to $1.2274, down from $1.2336 late Monday in New
York.
The yen also declined, with the greenback buying Yen106.45
compared with Yen106.10 on Monday.
What is driving the market?
The dollar regained its strength on Tuesday as traders started
to focus on the two-day Fed monetary policy meeting. The
announcement comes out on Wednesday and the market is pricing in a
94% probability of a rate rise, according to the CME Group's
FedWatch tool.
This will be the first meeting for new Fed Chairman Jerome
Powell, with investors waiting to see if he'll adopt the same
dovish tone as former central bank boss Janet Yellen or indicate a
faster pace of tightening.
Meanwhile, the euro skidded on Tuesday after a disappointing
reading on Germany's economic mood. The ZEW economic sentiment
index fell to 5.1 in March, missing forecasts of a 13.1 reading and
down from 17.8 in February. ZEW President Achim Wambach said
concerns over a U.S.-led global trade war weighed on the mood as
well as the recent euro strength.
Turning to the U.K., the pound lost its early morning vigor
after British inflation data for February dropped more than
expected. Consumer prices rose 2.7% last month, down from 3% in
January. Analysts had forecast a reading of 2.8%, according to
FactSet.
Read:The pound's post-transition deal bounce might not be here
to stay
(http://www.marketwatch.com/story/the-pounds-post-transition-deal-bounce-might-not-be-here-to-stay-2018-03-19)
What are strategists saying?
"Recent U.S data and Fed speeches would suggest the median of
FOMC participants' assessment of the appropriate pace of policy
firming (the dots) will unite around +2.125% or three-hikes for
2018, with an outside risk the median dot will move to +2.375%,"
said Dean Popplewell, market analyst at Oanda.
"Also posing a risk to dollar and yield curve positions is the
possibility the median dot for 2019 has moved up towards +3.125%,
signifying a belief among FOMC participants that four additional
rate hikes will be appropriate next year," Popplewell said.
"The key to dollar traders is how Fed officials, led by the new
Chair, will act on recent economic data and whether the fiscal
stimulus will eventually lead to a tighter monetary policy in 2018.
Market participants are split on whether the Fed will project four
rate hikes in 2018 compared to three in the last meeting. An upward
shift in the dot plot should support the dollar, although it is
likely to lead to further flattening in the U.S. yield curve," said
Hussein Sayed, chief market strategist at FXTM, in a note.
(END) Dow Jones Newswires
March 20, 2018 09:24 ET (13:24 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.