American FX Outlook: The silent night before FOMC rate hike and dot-plot puzzle

What you need to know before markets open

• Investors sentiment in Germany and the Eurozone deteriorated sharply in  March as US-led global trade conflict spurs concerns about the exports and the strength of Euro that is hampering the economic outlook for Germany and the Eurozone.
• Sterling’s appreciation at the beginning of this year has finally fed into lower import prices bringing the UK inflation to 2.7% y/y while core inflation decelerated to 2.4% in February.
• The Bank of Japan new Deputy Governors Amamiya and Wakatabe proved very dovish while emphasizing their readiness to add the monetary stimulus to achieve 2% inflation target.  
• The macro calendar is empty in the US before Federal Reserve Bank meeting on Wednesday.

Tuesday’s market moving events

• Canada’s wholesale sales are seen stagnating at 0.0% in January.
• No macro data are scheduled for the US before the Federal Open Market Committee (FOMC) meeting that is expected to deliver 25 basis points rate hike tomorrow.

Major market movers

• GBP/USD jumped as high as 1.4067 earlier on Tuesday on news of the UK agreeing transition period with EU from Monday, but the Brexit-related optimism was reverted soon after the UK inflation decelerated more than expected in February.
• Euro lost the steam against the US Dollar retreating towards 1.2300 after the Eurozone and German business sentiment fell unexpectedly sharply in March.
• The FX market is about to position itself for the Federal Open Market Committee meeting this Wednesday that is expected to deliver 25 basis points rate hike with fresh dot-pot macro prediction and first press conference of new Fed chairman Jerome Powell.

Earlier in Asia/Europe

• RBA meeting minutes repeatedly said that strong AUD would delay pick up in GDP growth and inflation.
• “The Australian dollar remained within its range of the preceding two years but that an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than forecast.” -key quote from RBA minutes.
• The Bank of Japan new deputy Governor Amamiya said that even with Japan escaping deflation, the economy still hasn't reached 2% inflation target.
• The Bank of Japan new deputy Governor Wakatabe said the Bank must avoid premature change in monetary policy while he won't hesitate to ease policy further if necessary confirming his dovish stance.
• German PPI fell -0.1% m/m while decelerating to 1.8% y/y in February.
• The UK CPI decelerated to 2.7% y/y in February while core inflation decelerated to 2.4% y/y.
• German ZEW index of investors sentiment worsened considerably falling to 5.1 in March compared to 23.6 its long-term average.
• ZEW index of investors sentiment for the Eurozone also deteriorated sharply in March falling to 13.4 compared to 29.3 in February.