(February 1, 2017) The markets have been gripped with political noise out of the U.S, since the FED Chair spoke over a week ago on her sentiment towards the U.S economy and interest rates. Yellen having managed to provide the Dollar with a boost amidst the negative Dollar sentiment as geo-political risk rained down on the Dollar and has continued to do so since, the Trump rally seemingly hitting a “wall” on Monday following the immigration ban.
Despite the negative sentiment towards the Dollar, the Dollar Spot Index spent the Asian session in positive territory, the Index sitting at 99.61 at the time of the report, a gain of 0.08%, following an overnight close of 99.512, whilst easing from an intraday high of 99.845.
Market sentiment towards geo-political risk has certainly not shifted overnight, the upside for the Dollar likely to be attributed to today’s FOMC interest rate decision and, more importantly, the FOMC statement that follows.
Economic data out of the U.S on Tuesday had shown that consumer confidence weakened in January, the weaker figures particularly relevant when considering the downside was attributed to consumer sentiment towards the economy over the short-term.
When considering the direction of financial markets in recent days and the U.S administration’s intent to influence the strength of the Dollar, there will be plenty that FOMC members would have discussed over the last 2-days, 4th quarter growth in the U.S having fallen short of expectations.
Looking at the general direction of the Dollar and bounce back in European equities, the general sense may well be that, while the FED may continue to talk up the continued U.S economic recovery, the degree of uncertainty over Trump policy and impact on the U.S economy may have become more elevated since the December FOMC.
Such a view may be viewed generally as a positive for the global equity markets, but a more cautious FED would point to a likely hold on rates until at least June, which would likely ease the number of projected rate hikes to two for the year.
The markets have generally looked towards two rather than three rate hikes, though Dollar bulls still remain in the picture, supporting any material downside and tonight the markets will likely get a sense of where the power truly lies in the U.S, whether it’s with the U.S administration or with the FED, Trump policy having certainly taken some of the power and the only real question being how much.
While focus will be on the FOMC statement, the markets will find it hard to ignore this evening’s macroeconomic data scheduled for release out of the U.S, which includes January’s ADP nonfarm employment change and ISM Manufacturing PMI figures.
Solid labour market figures this afternoon does not necessarily force the FED’s hand, the preferred government nonfarm payroll figures not due until Friday, but it will raise the stakes a touch, though looking at the dynamics, the political uncertainty in the U.S will likely be of more concern for the FED than a tightening in the labour market or a further pickup in the rate of inflation.
In consideration of the likely stance by the FED later today, the Dollar will likely begin to ease ahead of the statement release and today’s stats, a hawkish FED unlikely when considering the events unfolding in the political arena.
Across the pond, similar dynamics are likely to unfold with the parliamentary debate on Article 50 ongoing ahead of tomorrow’s BoE monetary policy decision, inflation report, MPC meeting minutes and Carney press conference, dubbed Super Thursday, cable currently sitting at $1.2605, up just 0.18% on the day, vulnerable to any noise from Westminster, support from the pound expected should sentiment shift to a softer-Brexit than that proposed by the British Prime Minister.