U.S. rate hike is coming, but the U.S. dollar is not responding

13 March, 2017

The greenback is weakening for a third consecutive day in early Asian trade ahead of Wednesday’s most awaited Fed meeting. Investors are almost convinced that the Fed will move forward in tightening monetary policy, with speculators pricing in 89% chance of a rate hike according to CME’s FedWatch Tool. Friday’s robust non-farm payrolls report removed all doubts and now even skeptical investors believe that three rate hikes are the base scenario for 2017. So why is the dollar  not benefiting from the shift in expectations? 

I believe the answer to this questions is simply based on “buy the rumor, sell the news” adage. The U.S. economy added 235,000 jobs in February and unemployment dipped to 4.7% from 4.8%, meanwhile wages were revised up 2.8% year-on-year from 2.6%. Despite wage growth not being robust enough, the continuous improvement in hiring will force wage growth to accelerate and diminish the slack in labor market.

The divergence in monetary policy and aggressive expected U.S. fiscal plans have been the key factors which sent the Dollar’s index to a 14-year high back in January. But recent reports indicated that European Central Bank policy makers have raised the possibility of increasing interest rates before the asset purchases come to an end, indicating that this divergence will not last much longer and investors might require to adjust their expectations.

I would rather focus on U.S. treasury yields for now as a break above 2.64% on 10-year treasuries might not only indicate that the dollar’s slide is temporary, but could be a sign that the three-decade bull bond market has come to an end, which will eventually increase the risk-free rate required by investors. And if U.S. corporate earnings growth can’t catch up, then we’re likely to see the beginning of U.S. equity markets correction.

In Europe, the U.K. divorce from the EU might become official as soon as Tuesday if the Brexit bill clears parliament later today. This will be the beginning of a very complicated two-year process, and much of it will be felt in the pound. Meanwhile Dutch voters are heading to the polls on Wednesday providing an indication on how strong the populist movement is in Europe ahead of upcoming polls in France and Germany.


Source link  
Traders unshaken by equity volatility

We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have...

Risk aversion returns after Easter break

The fall in tech stocks and escalating trade tensions continued to rattle markets after the Easter break. The S&P 500 fell 2.2% on the first trading...

Powell comments bring USD bulls back

The US dollar lifted today on the back of Powell's first address to congress in relation to his new appointment to the head of the Federal Reserve...


Oil takes the spotlight

For oil bulls they've not been this high since 2015 and it's seeming like we may continue to see further highs in the long run. So far oil has pushed through resistance at 62.12 and is now...

FOMC give some life back to dollar bulls

The latest FOMC minutes have given the bulls something to be happy about, as the FED once again looked to keep the pace of rate hikes in the near future.

USD stages comeback on CPI and retail data

It's been a positive day for US economic data as retail sales surprised analysts lifting to 0.2% (0.0% exp). This shows a strong build up in the period...


Currencies bound ahead of Fed decision

It is a quiet Wednesday in the currency markets. Traders are favoring to remain on the sidelines ahead of multiple key risk events...

Asian equities flat

Equities across the Asian markets were trading in a tight narrow range on Thursday, ignoring solid Chinese data and the new records on Wall Street, where the Dow Jones Industrial...

Inflation continues to worry FED

FOMC minutes were released today and painted some interesting pictures on the state of the US economy. So far FED members are calling for...


In the past 24 hours Bitcoin has gained 0.37% and reached $9310.13. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has lost -1.2229% and is now at $1.2229. Start trading and making money on Forex today.

In the past 7 days Ethereum has gained 23.94% and is now at $635.391. Have the most popular cryptocurrencies compared online 24/7.


Top Brokers offering Daily Forex Market Reviews


Forex Currencies Forecasts


Top 10 Forex Brokers 2018

# Broker Review
1easyMarketseasyMarkets90%
2FXTMFXTM87%
3HYCMHYCM85%
4FxProFxPro84%
5FIBO GroupFIBO Group82%
6FXCMFXCM70%
7XMXM68%
8Fort Financial ServicesFort Financial Services67%
9Alfa-ForexAlfa-Forex66%
10HotForexHotForex66%
  


Share: