The USD is higher across the board awaiting the release of the Federal Open Market Committee (FOMC) rate statement on Wednesday, March 15, at 2:00 pm EDT (6pm GMT). Fed speakers went out of their way in making sure they telegraphed the central banks’ decision as the market expected a more patient Fed given the Trump administration has not launched its tax stimulus and infrastructure spending policies.
The CME FedWatch tool based on Fed fund rate futures shows the market has listened to Fed member comments and the probability of a rate hike in March is 93 percent. The Fed will also update its economic projections with investors eager to see what path of tighter monetary policy the Fed is anticipating. Chair Yellen’s press conference before the financial press will be closely followed given the willingness to offer more transparent communication from the central bank. Yellen’s press conference is scheduled to start at 2:20 pm EDT (6:30 pm GMT).
The Fed is expected to raise the benchmark interest rate in March, making it the third time since the economic crisis. The American central bank would be proactive in 2017 after exercising a patient stance in the past two years which brought about one rate hike a year. The Fed appears optimistic about the growth of the U.S. economy and Yellen will be asked to address Trump pro-growth policies still to be enacted.
The EUR/USD lost 0.258 percent in the last 24 hours. The single currency is trading at 1.0634 ahead of the Fed’s FOMC statement where a rate hike by the U.S. central bank is highly anticipated. The USD rally lost steam at the beginning of the year as the Trump administration has not shown the same commitment to pro-growth policies as it did right after the elections.
The EUR got a boost from the comments from European Central Bank (ECB) President Mario Draghi that saw the worst outcome for the currency was still highly unlikely. As voters prepare to cast their ballot in the Dutch elections investor anxiety is on the rise. A win by the PVV Party could trigger the Netherland leaving the Union. Lack of cooperation from other parties make the PVV win less probable, but given the loss of confidence in pollsters after the Brexit and Trump wins the market won’t get ahead of the result.
French elections in April and May could prove to be end of the EUR if Marine LePen wins in the second round. The Far-right candidate has campaigned under a flag of nationalism with calls of reintroducing the franc. A Frexit would not be up to LePen alone unless in the improbable scenario where she wins a majority in the house.
The GBP/USD lost 0.544 percent in the trading session. The currency is trading at 1.2164 as the road clears for the legal proceedings to trigger Brexit. Invoking article 50 will begin a two year negotiation process that will result in the United Kingdom leaving the European Union. There have not been many fruitful meetings between the two sides on what the future trade relationship will look like. The U.K. has the most to lose, and this has been reflected in the pound. The USD has risen given the expectations of a rate hike in March putting further downward pressure on the GBP.
Scotland added to the political uncertainty in the U.K. after its First Minister Nicola Sturgeon said the is seeking a second Scottish Independence referendum within the next two years. The FX market so far has been the best gauge of investors losing confidence in Theresa May reaching an acceptable agreement despite the limited effect Brexit proceedings have had on the economy. The true impact of leaving the E.U. has not been felt as article 50 has not triggered Brexit.
The eyes of the market will be focused on the words out of Washington as the Fed finished its two day meeting with the publication of the U.S. benchmark interest rate, economic projections and press conference by Fed Chair Janet Yellen.