Dollar higher as Data Supports Hike

Traders already looking for next hike!

Traders and analysts have grown bored with playing the “will they / won’t they” game over the likelihood of a rate hike next week and have already begun looking ahead at the next one.

These are early outriders and better describe trader mentality more than any serious consideration of how monetary policy is being shaped. With next week’s hike now totally priced in, any further dollar strength is likely to be driven by any positive or concrete policy actions from President Trump. The Dollar index rose a little from its recent lows to 101.65, posting a 0.5% gain.

Yesterday, the pound fell to a seven week low, trading below the significant 1.2300 level against the dollar. More significantly, Sterling slipped 0.5% against a slightly stronger Euro. The single currency found some support from a French poll that showed the Election runoff could be between the two more centrist candidates, with the more radical right wing candidate falling away.

Sterling fell to the 0.8670 level the lowest since January 19 but the fall was little to do with sterling weakness and more to do with a tentative relief rally for the euro.

Today, the Brexit Bill will be handed back by the House of Lords. The only significant amendment being to confirm the rights of EU citizens remaining in the U.K. The announcement of the triggering of Article 50 is imminent and market reaction will set the tone for the pound as negotiations start. The currency has become a little immune to Brexit since it has become inevitable. The so called “Hard Brexit” is now very likely since the Government is taking the populist stance of limiting immigration over membership of the single market.

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Further data releases likely to support Euro

The euro settled back below the 1.0600 level, closing close to 1.0580, following its 0.5% rally against the dollar yesterday. There is interest to sell the single currency close to 1.0620 and today’s data releases in Europe could give a chance for those orders to be filled.

German factory orders are forecast to be up 1.5% in February. Germany is the only really significant contributor to Eurozone GDP. The data for growth in the Eurozone as a whole is released today. While not disappointing markets, accustomed to activity “bumping along the bottom”, it will give a good indication of the direction of interest rates for the rest of 2017. GDP data forecasts arise of 0.4% QoQ, leading to 1.7% annual growth.

The ECB meeting on Thursday is expected to leave rates unchanged. The means to add growth to the economy, by using monetary policy, are being hampered by the Bundesbank acting quietly in the background whispering in Sr. Draghi’s ear about German inflation.

Australia holds rates as expected

Overnight, the Reserve Bank of Australia met to decide interest rate policy. As expected by the market, and hinted at by the RBA Governor last week, there was no change. The Australian dollar, which had been suffering against a stronger U.S. dollar, moved 0.6% higher at 0.7621 following the announcement.

A whole slew of Chinese data will be released prior to the opening of European markets tomorrow with particular attention being paid to the level of foreign exchange reserves. They are expected to be unchanged because the PBoC has intervened less to maintain the level of the CNY. Trade data is also being released and a fall in the surplus to $25.75bn is likely driven by must higher imports as evidenced by Australian trade which has reported consecutive record exports.