Dollar Softens as Markets See Sanctions Against Russia as Modest

Dollar Softens as Markets See Sanctions Against Russia as Modest

The United States, US, dollar slides against its major trading partners early Wednesday as markets judged the initial sanctions against Russia to be modest, allowing for slightly more risk-taking.

There are no major US data releases scheduled for Wednesday. Weekly mortgage applications fell sharply, according to data reported earlier Wednesday, while the weekly Redbook retail sales report is due today.

Looking ahead to the rest of the week, an update to Q4 GDP, weekly initial jobless claims and new home sales will be released on Thursday and personal income and spending and the University of Michigan’s sentiment index will be released on Friday.

Markets will also be following speeches by Federal Reserve officials to gauge the possibility for a 50-basis point increase at the March 15-16 Federal Open Market Committee meeting.

A quick summary of foreign exchange activity heading into Wednesday shows that GBP-USD rose to 1.3593 from 1.3586 at the Tuesday US close and 1.3566 a day earlier. There were no UK data released on Wednesday, so markets will focus on a speech by Bank of England member Silvana Tenreyro at noon.

Markets see a 25-basis point rate increase at the March BOE meeting as a virtual certainty and a 50-basis point increase is close to a 50-50 chance, followed by passive balance sheet roll-off shortly after.

EUR-USD rose to 1.1341 from 1.1326 at the Tuesday US close but was down slightly from 1.1344 a day earlier. Euro area consumer price gains accelerated in January from December, according to data released earlier on Wednesday, while the rate of core inflation slowed.

European Central Bank Vice President Luis de Guindos said earlier Wednesday that inflation is now less transitory and more persistent, noting that the impact of the situation in Ukraine on energy prices will need to be monitored.

USD-CAD fell to 1.2707 from 1.2767 at the Tuesday US close and from 1.2735 a day earlier. There are no Canadian data scheduled for release on Wednesday, but the prospect of higher oil prices is pushing the Canadian dollar higher.

Markets look for a 25-basis point increase at the March 2 Bank of Canada meeting despite the negative impact of the protests in Canada, with some looking for a 50-basis point increase if the incoming data is strong. Read: Dollar Trades Steady Early Thursday in Quiet Trading

USD-JPY ticked up only slightly to 115.092 from 115.0693 at the Tuesday US close and from 115.0907 a day earlier as Japanese markets are closed on Wednesday. #Dollar Softens as Markets See Sanctions Against Russia as Modest