Yesterday’s speech by Federal Reserve Chair Jerome Powell did not include the hawkish surprise some had feared. Ultimately, Powell delivered the minimum amount of pushback against dovish speculation required by the strong January jobs report. So, what now for the dollar? We think markets may feel relatively comfortable with the current pricing for a 5.15% peak rate for now. This means that the dollar’s upward correction may have a bit more to run, but we doubt this will morph into a sustained USD uptrend from this point on. So once again, it will all be about data. Today, the US calendar is rather quiet but there is plenty of Fedspeak. We think the absence of key data can favor some stabilization in the dollar today, risks are skewed towards another small leg higher in the greenback.
The CAD is a moderate under-performer on the session but the exchange rate continues to hold well within the ranges that have persisted over the past few weeks. For the first time, the Bank of Canada will publish a record of last month's central bank meeting. This should draw attention, but it is clear that central bank will be on hold at next month's meeting (March 8). The Canadian dollar tracked the US stock markets swings yesterday. The greenback held below Monday's high (1.3475) and settled near CAD1.3400. It has slipped to CAD1.3360 today but intraday indicators suggest a push higher in early North American activity. Observe the USD/CAD trends.
Yesterday’s decision by the European Central Bank to cut rates on government deposits to encourage fund withdrawals should not have strong implications for the euro for the moment. The process of hawkish re-tuning by ECB officials after last week’s market reaction to President Christine Lagarde's press conference looks likely to continue, although it appears to have been largely factored in by markets. There is only one speaker scheduled today, Klaas Knot (a hawk) and no interesting data releases in the eurozone. EUR/USD broke below 1.0700 yesterday before rebounding. We think that further explorations below 1.0700 are possible in the coming days, but it looks like they will mostly depend on dollar moves.
Yesterday’s comments by MPC member Jon Cunliffe were mostly focused on paving the way for a “digital pound”, rather than on monetary policy. Despite being a rather interesting discussion for the future, this is not impacting the pound’s exchange rate at the moment. The Bank of England’s pushback against dovish rate speculation continues to drive direction for the GBP. The UK data calendar is empty today, and there are no scheduled BoE speakers. Tomorrow, Governor Andrew Bailey will testify to parliament.
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