Market News & Insights
21 March 2018

Rate Hikes Priced For USD

Markets focus was heavily towards Facebook yesterday and the ongoing pressures that are mounting from various governments into how they protect client data, or rather how they provide client data to external sources – in this case to assist the Trump campaign . What appears to have been forgotten is that President Obama utilised client data from Facebook to identify demographics and openly discussed this in the past, and let’s not forget the targeted advertising that occurs across the online spectrum so the question on whether this is another witch hunt to shake the current administration, or something far greater remains to be seen. Outside of that storm markets felt rather benign as they await this evening FOMC meeting announcement, with a 25 bps point hike already priced in, the real detail will be on the Fed’s dot chart and its potential path. This is also the Fed Chair Jerome Powell’s first meeting and everyone is keen to see what changes, if any, he will bring to the FOMC, as well as broader FOMC thinking on the economy, inflation and fiscal stimulus.

Elsewhere GBP was on the charge as well, inflation actually fell faster than expected through February at an annualized rate of 2.7% vs 2.8% expected and down from its peak of 3.1% a mere few months ago. This is great news for those in the UK and the firmer GBP on the day the likely result of the narrowing wage growth gap as earning are expected to have risen to 2.6%, that data is due for release this morning. That will be the key figure for us, with headline unemployment also scheduled this am, expected to remain unchanged at 4.4%. The bigger picture behind sterling’s rally however is the progress and agreement on how the transition process with work. However, the details I have seen seem relatively scarce and while some key issues have been addressed, the Irish boarder issue remains unresolved.

We’ve been in situations like this several times over the past 18 months or so and while progress is positive, there will almost certainly be additional stumbling blocks and with them we will see GBP weaken again. EURGBP dropped down to just above another key support area, .8730/40 has provided support in the past 8 months and any drop below has been brief quickly running into buyers. .8810/20 should hold any rallies higher intraday. GBPUSD has found buyers on dips below 1.4000 area, as low as 1.3982 yesterday, likely a similar story today and only a break sub 1.390 area will really negate upside momentum here. The upside is looking weak however as the GBP rally runs out of steam.

The euro faced some weakness across the board yesterday EURUSD and EURJPY were almost 1% down on the day at one point while EURGBP and EURCHF were closer to .6% and .4% down respectively. Selling started early for the single currency as the German ZEW was released, and while the headline print at 90.7 was better than expected, the expectations component was considerably weaker at 5.1 (vs 17.8) and the Eurozone figure also showed significant declines to 13.4 down from 29.3. The European calendar is light today but one of the biggest pairs to watch through the FOMC tonight will be EURUSD. EURUSD feeling heavy and sitting just above some key support levels, light support around between 1.2200 and 1.2250 has provided a spring board for recent decline but a break sub 1.2158 area and the pair will be looking at a drop back sub 1.2100.