Top Story

Dollar up for fourth day ahead of FOMC minutes

The US dollar is higher across the board as the short-covering rally continues. The Dollar Index is now up for the fourth consecutive day. Barring a surprise sell-off later on today in reaction to the FOMC minutes, the greenback could be on the verge of a more significant comeback. Thanks to a stronger economy, the Fed looks set to tighten its belt more aggressively this year. This should help push bond yields higher and support the dollar, especially against her weaker rivals. While the pound may not be so weak any more, it took a dive towards $1.39 from around $1.40 this morning following the release of mixed-bag UK employment and wages data.

Mixed UK data weighs on pound

As a reminder, average weekly earnings in the UK rose 2.5% in the three months to December compared to the year before. This was in line with expectation and unchanged from the previous month. Earnings excluding bonuses also printed +2.5% but this measure of wages was actually slightly better than +2.4% expected and marked an increase from +2.3% previously.  However, the slightly positive wages data was overshadowed by weakness in the jobs sector. The unemployment rate unexpectedly rose to 4.4% from 4.3% as employment increased by 88,000 versus 165,000 expected in the three months to December. However, a key leading jobs market indicator showed a positive surprise: UK jobless claims unexpectedly fell by 7,200 last month.

So, it wasn’t all doom and gloom. However, this was not enough to support the pound, which was pressured further by ongoing Brexit uncertainty amid reports that Britain is demanding an open-ended transition period before officially leaving the EU. Still, given that today’s data were not too bad and with the Bank of England turning hawkish by the day, the pound’s weakness could be short-lived, especially against currencies where the central bank is still more dovish than the BoE.

FOMC minutes eyed

However, against the US dollar, the GBP could extend its declines in the near-term given the recent dollar strength. Consistent improvement in US data means the Fed looks set to raise rates more aggressively this year. We will get a glimpse of exactly how hawkish the Fed really is later on today, when the FOMC’s last meeting minutes are released. This has the potential to move the dollar sharply in one or the other direction. If the minutes convey hawkish comments then the dollar could easily extend its rally, while anything surprisingly dovish could have the opposite impact. But my worry is that everyone is expecting to see hawkish minutes and this is being reflected in the dollar. So, the minutes may have to be significantly more hawkish than anticipated, otherwise profit-taking could lead to a retracement in the dollar’s rebound.

GBP/USD’s lower lows and lower highs point to potential drop to 1.3650

But if the dollar continues to remain bid post FOMC minutes then the cable might snap, especially as it is struggling to get past its pre-Brexit levels around the 1.40s. With GBP/USD recently forming a couple of lower highs and a lower low around these historic resistance levels, we think that a drop towards 1.3650 – the 2017 high – could be on the cards in the coming days. That being said, we would be quick to drop our short-term technical bearish views in the event the cable goes back above the pivotal 1.40 level again.   


Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT