Rate hike all but confirmed
The delay in the release of the U.S. employment report until next Friday will give the FOMC a further week to prime the market for the rate hike that the market believed is no 80% certain for March 15th.
It is highly likely that Fed Chair Janet Yellen will have had some “advance warning” of what to expect when she speaks later today.
The dollar continues to be the only game in town although offers are plentiful given the market's liquidity. The grind lower for the pound and Euro is well controlled and won’t be giving undue concern to Central Bankers.
Significant supports at 1.2000 and 1.000 are not too far away but a driver for a rapid test of those levels doesn’t exist right now.
Commercial interest to buy sterling, in particular, is stronger given the fall of 20% in the value of the pound in such a relatively short time. That having been said there will be a major drop powered by unhedged corporates should the 1.2000 level be breached conclusively.
In a survey of “people who should know” published yesterday, their prediction was for sterling to remain above the 1.2000 threshold in the medium (6 month) term which will be music to the ears of importers and BoE officials. The inflationary aspects of a weaker currency shouldn’t be underestimated and and respite will please Governor Mark Carney and his steady hand tactics.
Talking of “people who should know”, Deutsche Bank predicts 1.1400 for the pound for the end of March and Nat West 1.2900…….go figure. Me? 1.2500 once the “sell the rumour buy the fact”froth is out of the way.
The same survey predicted a narrow range for the euro of between 0.8500 and 0.8700, that factors in wholly expected election results in The Netherlands and France. There is a lot of water to flow under the bridges of Amsterdam and Paris before those results are final!
The drivers for the euro are well documented but a slew of data next week will paint a slightly clearer picture adding to the responses expected from ECB President Mario Draghi at the Press Conference following next Thursday's Rate setting Meeting.
The dollar is ahead by almost 2.5% against the JPY this week as “risk on” trades emerge on the back of a stronger U.S. economy. Japanese inflation due next week is likely to show further 0.3% fall in inflation which will encourage further easing of already ultra-easy monetary policy. I am not sure of what follows ultra-easy but I am sure someone cleverer than me will coin a phrase. There is one other facet of everyday life where the term ultra-easy can be coined but no one wants to go there!
Ten day countdown begins on Monday
All leave is cancelled from Monday as a big ten days begins. There are plenty of data releases and interest rate decisions over the week affecting the EU, China, Australia and the U.K. but the “big one”, the U.S. employment report next Friday will really set the tone.
On 15th March the Dutch go to the polls and Mrs. Yellen will put us all out of our misery. Before that it could get a little hairy but whilst liquidity remains high, opportunity beckons, just ask traders at Deutsche and Nat West!