05/01/17 - Fed Officials Expect Aggressive Fiscal Policy

USD

The dollar fell against the euro and yen yesterday, backing off a 14-year high against a basket of currencies with investors cautious about increasing bets on the greenback without fresh clues on the U.S. economy and the timing of interest rate increases.

The dollar surged to its highest levels since late 2002 on Tuesday - the first day of trading in 2017 for most financial centers - after U.S. manufacturing data beat expectations.

Analysts said low volume in markets this week may have exaggerated Tuesday's moves, pushing the dollar higher in the absence of some larger market participants.

The dollar has climbed almost 6 percent since Donald Trump was elected U.S. president eight weeks ago, on expectations that his administration will introduce reflationary measures backed by large fiscal spending and prompt the Federal Reserve to follow through with a series of interest rate hikes.

According to the FOMC meeting minutes released late yesterday, Federal Reserve officials in December approved their first interest rate hike in a year, based in large part on the market’s reactions to the presidential election and the anticipation of aggressive fiscal policy ahead. Donald Trump’s election win appeared to be strongly on the Committee’s minds as a quarter point hike was unanimously approved.

GBP

Sterling posted its first daily rise against the dollar of 2017 on Wednesday, as upbeat business and consumer data, and a pause in the U.S. currency's upward march, pulled the pound up from a two-month low. 

The early departure of Britain's ambassador to the European Union on Tuesday, and the prickly tone of his resignation letter, added to concerns of a rocky period ahead for sterling as Britain prepares to launch formal talks on leaving the bloc.

Nevertheless economic data remains stronger than many economists expected after June's Brexit vote, and construction and consumer credit data on Wednesday both beat forecasts, causing sterling to move slightly higher.

It came a day after figures showed manufacturing growth hit a 2-1/2-year high last month and boosted the pound.
 

Key Announcements

09.30 – GBP : Services PMI; Forecast at 54.8 against a previous of 55.2

13.15 – USD : ADP Non-Farm Employment Change; Forecast at 171k against a previous of 216k

13.30 – USD : Unemployment Claims; Forecast at 262k against a previous of 265k

15.00 – USD : ISM Non-Manufacturing PMI; Forecast at 56.6 against a previous of 57.2

16.00 – USD : Crude Oil Industries; Forecast at -1.8M against a previous of 0.6M