American FX Outlook: Markets seen digesting dovish rate hike from Fed

What you need to know before markets open

• Fed raised the target range for the federal funds rate by 25 basis points to 1.50%-1.75% as expected. Although Fed was upbeat on economic outlook adding one more rate hike for 2019-2020, it remained dovish in adding another rate hike for 2018 and that disappointed FX markets.
• The Eurozone economic activity decelerated sharply from last November-December peak with projections from growth still looking good by historical standards.
• German IFO index levels out to 114.7 in March in a sign that the export-oriented German economy is worried about Trump-induced trade wars.
• The UK retail sales rose above expectations in February after two months of rather disappointing figures but failed to support Sterling broadly.
• The Bank of England is widely expected to hold rates steady in March with the case building up for  Bank rate rise in May together with May Inflation Report and the press conference that follows. This is likely to be confirmed with Brexit headlines that are set to provide less uncertainty after the end-of-the-week European summit. For detail read my Preview here.

Thursday’s market moving events

• The Bank of England is expected to keep monetary policy unchanged with all nine MPC members seen voting in favor of Bank rate stability at 0.50%.
• The US weekly jobless claims are seen reaching 225K on March 16.
• The US manufacturing PMI is expected to rise to 55.5 with services ticking down to 55.8 and composite PMI decelerating to 55.7 in March.
• The Bank of England Deputy Governor Sir David Ramsden is scheduled to deliver closing remarks at the International FinTech Conference, in London at 17:00 GMT.
• The Bank of Canada Deputy Governor Carolyn Wilkins is scheduled to speak at the Rotman School of Management, in Toronto at 19:00 GMT with the text of her speech released at the Bank of Canada website 15 minutes before the speech is due.

Major market movers

• The US Dollar started the day after Fed delivered dovish rate hike on a weaker note but managed to regain some strength against Euro after worse-than-expected economic activity indicators from Eurozone and Germany.
• The Bank of England is scheduled to decide on monetary policy, with no major changes ahead of European summit stating today expected.

Earlier in Asia/Europe

• Australian employment rose 17.6K in February with the unemployment rate ticking up to 5.6%.
• French manufacturing PMI decelerated to a 12-month low of 53.6 in March while composite PMI decelerating to a 7-month low of 56.2 in March.
• German manufacturing PMI fell more than expected to 58.4 in March while services fell to 54.2 and composite PMI fell to the 8-month low of 55.4 in March.
• The Bank of Japan new Deputy Governor Wakatabe showed his readiness to ease monetary policy without hesitation if needed for the second day in a row.
• The Eurozone manufacturing PMI fell to 56.1 in March, services PMI fell to 55.0 and composite PMI fell to 14-month low of 55.3 in March.
• German IFO index of business climate decelerated to 114.7 in March but might surprise on the downside similarly to ZEW index.
• The UK retail sales rose 0.8% m/m and core retail sales up 0.6% m/m in February.