Market Drivers March 22, 2018
EZ PMIs miss
AU Labor data in line
Nikkei 0.99% Dax -0.38%
Europe and Asia:
AUD AU Employment 17K vs. 20K
EZ PMI 55.3 vs. 56.7
GBP Retail Sales 1.5% vs. 0.9%
GBP BOE Rate Decision 8:00
One day after the Fed rate hike that took US yields to OECD leading 1.75% the dollar remained lower across the board as FX markets continued to ignore the growing interest rate differentials between US and the rest of G-11 universe.
On a night that was chock full of economic data, there was good two-way flow in most of the majors but they remained contained in 30 pip ranges for most of the Asian and European dealing.
In Asia, the Australian labor data came in essentially in line at 17K vs. 20K eyed. Although job growth remains solid, wage growth continues to be tepid and as a result, Aussie sold off a bit in post news reaction on assumption that RBA will remain stationary for the time being.
In Europe the EURUSD was kneecapped by weaker than expected PMI data which printed at 55.3 versus 56.7 eyed. While economic growth in the region remains robust, its off its highs and has show a slowdown since the start of the year. The slowdown in activity was confirmed by the IFO data which also came in slightly less than the month prior at 114.7 versus 115.4. The clear deceleration in growth is making the market doubtful about any prospect of normalization of monetary policy in EU in the near term. While the taper is clearly on, the idea of actual rate hikes may not be considered until 2019 and that realization weighed heavy on the euro pushing the pair back towards 1.2300.
In North America today, the focus shifts to the BOE which is expected to keep rates steady. But the market is already anticipating a 25bp rate hike in May especially since wage growth picked up February and Retail Sales ddi better as well. Cable faded ahead of the 1.4200 figure dropping through 1.4150 support, but if the vote count on the MPC goes from 0-0-9 to 1-0-8 or better the pair is very likely to take out the 1.4200 level on the assumption that a May rate hike is assured.
The key question is whether the markets will believe him and the post presser price action will be key. Ultimately the dollar rally can only become sustainable if US data shows re-acceleration which is why any bump higher in the buck may be short-lived if the US economy can’t back up the Fed.