Talking Points:
- Today at 2PM ET brings the March rate decision out of the FOMC[1]. A hike at today’s meeting has long been expected, and it would be surprising if no adjustments are made. More pressing, however, is the Fed’s tolerance for rate hikes for the rest of 2018. If we see a signal for four hikes this year as taken from the Dot Plot Matrix, a string of short-term strength may develop in the US Dollar[2]; and this could eventually become attractive for selling USD[3] into the longer-term bearish trend.
- We look at three Dollar-pairs below in EUR/USD[4], USD/JPY[5] and GBP/USD[6], each with varying degrees of attractiveness for short-side USD plays. EUR/USD may have a deeper retracement in store before the longer-term trend is ready for resumption, while USD/JPY continues to tangle around long-term support. GBP/USD, on the other hand, appears to have already gotten started with that bullish trend resumption, and tomorrow’s Bank of England rate decision will likely keep the pair on the move.
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If you’re looking for short-term indicators around the US Dollar, check out our IG Client Sentiment Indicator[9].
FOMC On Deck
Today at 2PM ET brings the Federal Reserve’s March rate decision[10]. A hike at today’s meeting has been long assumed, and probabilities for a 25 basis point adjustment remain at 94.4%. So, it would be a far bigger surprise if we didn’t get a hike later today. More pressing, however, is the Fed’s tolerance for rate hikes for the remainder of the year. Current market assumptions are looking for three moves in total from the Fed in 2018; but after Mr. Powell’s first major public appearance[11] in-front of Congress earlier this month, odds for a fourth hike have continued to grow and are currently sitting at 39.2%. (All probabilities derived from CME Fedwatch[12])
Despite all this hawkish drive, and even though the Fed is one of the few major Central Banks in the midst of tightening policy, the US Dollar remains near those three-year lows that were set just last month.
US Dollar via ‘DXY’ Weekly Chart: Fibonacci Support in January, February Helps to Hold the Lows
Chart prepared by James Stanley[13]
US Dollar Weakness as the Fed Remains Hawkish - A Fiscal Conundrum
While rate hikes and tighter policy are often positives for an economy’s currency, that hasn’t been the case around the US Dollar. The Greenback began trending-lower a year ago, and
