Dollar rises strongly vs European peers on short covering after hawkish comments by Fed officials: March 30, 2017

Market Review - 29/03/2017   22:23GMT  

Dollar rises strongly vs European peers on short covering after hawkish comments by Fed officials

The dollar remained higher against its European peers on Wednesday as the Trump healthcare bill related selloff faded and investors focused on hawkish comments from several Fed officials. 

Fed's Evans said 'he supports one or 2 more rate hikes this year. Afterwards, Fed's Rosengren and Fed's Williams both said out they supported further rate hikes.  

Versus the Japanese yen, despite rising to an intra-day high at 111.32 in Asian morning, dollar pared its gains and dropped briefly to session lows at 110.72 ahead of New York open on broad-based buying of yen. Later, price found renewed support there and staged a rebound to 111.15 in New York middday and traded narrowly for rest of afternoon session.

The single currency met renewed selling at 1.0827 in Asian morning and dropped to 1.0777 in early European morning on cross-selling of euro vs sterling. Intra-day decline then accelerated and dropped to an intra-day low at 1.0741 at New York open on comments from ECB's sources. Price later pared intra-day losses and recovered to 1.0773. 

ECB sources said 'ECB policymakers wary of making fresh policy-message shift in Apr, worried about potential yield surge; ECB wanted to communicate reduced tail risk not step to the exit, Mar message was way over interpreted.' 

The British pound tumbled to 1.2377 at Asian open after UK Prime Minister May signed the Article 50 letter, however, price pared its gains and staged a short-covering rebound to 1.2420 at European open, then 1.2477 ahead of New York open. However, cable met renewed selling there and retreated to 1.2397 in New York midday but later ratcheted higher back to 1.2447 near the close. 

UK's PM May, in letter to EU stated 'we recognise that it will be a challenge to reach such a comprehensive agreement within the 2-year period; we shud begin technical talks on detailed policy areas as soon as possible; need to prioritise the biggest challenges in negotiations; we shud work together to minimise disruption n give as much certainty as possible.' 

In other news, EU's Tusk said 'there is smth positive in Brexit, it has made the EU 27 more united than before; we will remain determined n united during difficult negotiations; EU will protect interests of 27; this is about damage control; EU aims to minimise cost to EU citizens, business n states; as of now nothing has changed; until Britain leaves, EU law continues to apply there; EU council has issued statement saying will act as one to ensure orderly UK withdrawal.' 

On the data front, the U.S. National Association of Realtors said its pending home sales increased by 5.5% last month, more than doubling expectations for an increase of 2.4%. 

Data to be released on Thursday: 

Australia home sales, German import prices, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence, Germany CPI, HICP, U.S. GDP, PCE, core PCE, jobless claims and Canada PPI.