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US Open Preview – Dollar on the rise as FOMC gathers; European stocks step lower
March 20, 2018 1:26 pmVideo
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Here are the latest developments in global markets:
Day ahead: FOMC board members begin policy meeting; G20 meeting concludes
In the absence of major economic releases out of the US, the focus is turning to the Fed which starts its two-day monetary policy meeting today. It will be chaired by Jerome Powell for the first time since his nomination, with the rate announcement and fresh projections on the path of interest rates, economic growth, unemployment rate and inflation expected to be made on Wednesday at 1800 GMT. While a rate hike is a widely anticipated outcome with the CME Federal Reserve tool indicating an almost 95% probability of this happening, investors will be closely looking for any clues that could signal four rate hikes this year instead of three currently priced in the markets.
Given the latest upbeat evidence on the US economic performance and the potential positive effects stemming from the new tax overhaul, policymakers could back the scenario of ‘faster rate hikes than previously expected’, with the Fed Funds futures implying a probability of 35% of four or more rate rises in 2018 compared to less than 10% three months ago. However, the persisting softness in inflationary pressures could persuade policymakers to reiterate only gradual interest rate rises. Speaking on Monday in Philadelphia, Janet Yellen, the former Fed chair, said that a slower tightening could overheat the market, while a faster tightening could restrict inflation from reaching the Fed’s 2.0% target.
On the trade front, the G20 meeting concludes today and any valuable news out of the event could move the dollar. In case statements disappoint, fuelling concerns of a potential global trade war, the dollar could slip into losses, while a milder response could ease tensions and provide support to the greenback. Meanwhile, on Monday sources said that the US President is preparing to impose a $60 billion package of annual import tariffs on Chinese products to punish China for intellectual property theft, with the plan expected to be unveiled by Friday.
In terms of data releases, the economic calendar features January’s wholesale trade figures out of Canada later in the day at 1230 GMT and Eurozone flash estimates on consumer confidence for the month of March at 1500 GMT. New Zealand will see the results of the bi-weekly milk auctions today at a tentative time which could bring fresh volatility to the kiwi. Investors, though, could pay greater attention to the RBNZ policy meeting held on Thursday.
In energy markets, the American Petroleum Institute will publish readings on the US crude inventories at 2030 GMT. A meeting between the US President, Donald Trump, and the Saudi Arabian Crown Prince, Mohammed Bin Salman, could attract some attention as well, as both countries seem to be looking for ways to impose tougher measures against Iran’s nuclear program. Note that Saudi Arabia – US relations have been improving after tensions under the previous US administration. Therefore any intention between the countries to deliver a new round of sanctions against Iran could lift oil prices as this could weigh on Iranian oil supply.
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