Dollar Falls Ahead of Fed Rate Hike
The US dollar was lower against its major trading partners early Wednesday, except for the Japanese yen, heading into the highly-anticipated March Federal Open Market Committee statement Wednesday afternoon.
A 25-basis point increase in the federal funds rate is widely expected, so markets will be focused on what the Fed says as much as what they do.
An updated Summary of Economic Projections, including future rate expectations, will be released with the statement. Any forward guidance on the path of future rate increases and the reduction of the balance sheet will be closely watched.
Also on Wednesday, retail sales and import prices for February, business inventories for January, and the NAHB index for March will be released, followed by home construction, weekly jobless claims and industrial production data on Thursday, and existing home sales on Friday.
A quick summary of foreign exchange activity heading into Wednesday shows that USD-JPY rose to 118.2992 from 118.2891 at the Tuesday US close and 118.0024 a day earlier.
The Japanese trade deficit improved by less than expected in February and the decline in February industrial production was revised smaller, data released overnight showed. Japanese inflation data will be released on Friday ahead of the Bank of Japan meeting.
No policy change is expected.
USD-CAD fell to 1.2710 from 1.2766 at the Tuesday US close and was well below the 1.2843 level a day earlier. Canadian consumer price data and wholesale sales will be released on Wednesday, with inflation projected to accelerate further, fueling expectations for another rate increase at the April meeting. Canadian retail sales data will be released on Friday.
GBP-USD rose to 1.3070 from 1.3042 at the Tuesday US close and 1.3036 a day earlier. READ: U.S Dollar Lower Ahead of Busy Data Schedule
There are no UK data scheduled for Wednesday, so the attention turns to the Bank of England’s policy announcement on Thursday. Markets have priced in another 25-basis point increase, with a small chance of a 50-basis point hike.
EUR-USD rose to 1.1008 from 1.0953 at the Tuesday US close and 1.0993 a day earlier. Italian consumer prices surged on an annual basis in February due to base effects, as the monthly pace slowed from January.
European Central Bank President Christine Lagarde said Tuesday that despite the situation in Ukraine, the Eurozone economy is still expected to grow “robustly” in 2022. #Dollar Falls Ahead of Fed Rate Hike
