USD boosted by prospect of further Fed hikes
The chairman of the US Federal Reserve was answering questions in Washington DC yesterday and, although he stated the blindingly obvious, it was enough to boost the US dollar. Chairman Powell made it clear that if the data suggests further interest rate hikes are necessary to control inflation, the Fed will hike interest rates accordingly. There is nothing controversial in that but analysts commentators and traders all assumed that a 50 basis point hike in March is all but certain now. Most likely, the key to this is Friday’s employment report. A net jobs gain of more than 200,000, which is well within the realms of probability, would trigger further US dollar strength although some of that expectation is already priced into the value of the US dollar. The GBPUSD rate starts the day down at $1.1815 and the EURUSD rate is also down to $1.0540.
Eurozone GDP due today
German industrial production rose by 3.5% in January, more than double the market forecasts. However, German retail sales disappointed, a contraction of 0.3% was much better than December’s 5.3% fall but the markets had expected roughly 2.0% of growth. That sets the mixed messages scene for this morning’s release of economic growth data for the Eurozone and a speech from the President of the ECB, Christine Lagarde. Although the GDP number is likely to be the same as the early estimates, Mrs Lagarde can shift sentiment towards the Euro if she so wishes. Right now, the GBPEUR rate is pretty stable around €1.12
GBPCAD down by 1 cent ahead of BoC decision
There is every likelihood the Bank of Canada will leave their base rate on hold when they meet later today. At 4.5%, the rate is on par with levels not seen since the pre-financial crash in 2007. You have to look all the way back to 2001 to see a higher Canadian base rate. The Canadian dollar has strengthened ahead of this decision but that may be down to its closeness to the USD due to Canada’s reliance on the US as an export market. However, with the US Fed still talking about hikes and the BoC possibly set for a pause in their rate rises, there is every chance the Canadian dollar will lose ground later today. The GBPCAD rate is down to CAD 1.6265 this morning but volatility is almost certain in the day ahead and a bounce back above CAD 1.64 is a real possibility.
