16/03/2018 - Dollar Rallies Ahead of FOMC Meeting

USD

The dollar rallied against its major rivals yesterday as investors positioned their portfolios for next week’s FOMC meeting at which the Fed is expected to hike US interest rates.

The US currency found some support from stronger than expected labour market data which showed that unemployment claims amongst Americans fell last week. Other data also showed an increase last month in the prices of imported goods amid broad dollar weakness which has boosted hopes of a pick-up in inflation over the next year.  Both data releases have reinforced expectations that the Fed will tighten policy at least three times in 2018.

Nevertheless analysts have said that the outlook for the US currency in the long term remains gloomy given the ongoing political uncertainty in the White House and renewed concerns of a trade war within the global steel and aluminium industry. 

Investors are worried that a shift towards increased protectionism under president Trump will harm local producers as the proposals may spark a retaliation form other major trade partners such as China and Canada.

GBP

The pound fell against the dollar yesterday as further uncertainty over a transition deal being struck with the EU quelled positive sentiment around sterling.

With no major economic data being released to drive the pound, traders remained focus on next week’s Bank of England policy meeting as well as an EU summit where the UK is expected to sign a transition deal to cover its relations with the bloc immediately after its departure this time next year. There are increasing concerns that a no deal scenario will jeopardise an interest rate hike by the Bank of England in May as the bank’s current forecasts are based on a smooth break.

Key Announcements

12.30 – USD: Building Permits; Expected to fall to 1.33M from a previous of 1.38M