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Corrective forces emerge, tempering the Dollar's rally - BBH

Global currency strategy team at BBH Markets, in its daily CurrencyView report, analyzed the US Dollar's ongoing corrective slide from Wednesday's one-month high, despite of upbeat economic releases. 

Key Quotes:

"Signs of the correction began yesterday in North America.  The dollar was unable to sustain gains despite a string of stronger than expected data, including January CPI, retail sales, industrial production, and the Empire State manufacturing survey for February."

"Market expectations for more Fed hikes this year than the last two combined have solidified.  This is evident in the Fed funds futures strip and the US 2-year premium over Germany edged closer to 2.05% multi-year high set at the end of last year.  Comments from NY Fed President Dudley, on the back of Yellen's testimony to Congress, also suggested the strengthening of the Fed's conviction by acknowledging that the balance of risks are shifting to more growth than expected rather than less."

"The Dollar Index had moved higher for ten consecutive sessions before reversing yesterday's gains to close lower.  Yesterday’s and today's losses have seen the Dollar Index retrace 38.2% of the advance since February 2.  That retracement objective was near 100.80.  The 50% retracement is found near 100.50 and the 61.8% retracement by 100.20."

"After Yellen and Dudley recent comments, there is unlikely to be new news from Fischer today.  He appears on Bloomberg TV shortly and San Francisco Fed's Williams speaks at a fintech conference toward the end of the North American session.  While many still see March as too early to move, given the tone of Yellen and Dudley's comments, many see June as too far away.  There is beginning to be a greater focus on May.  Although there is no press conference or updated forecasts at the May meeting, the thinking is that by raising rates then, it would create new degrees of freedom for the Fed moving forward."

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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