Global markets await Fed rate hike and elections in the Netherlands

Ebury Forex Market Analysis

Although the latest US payroll report points to a virtually certain rate hike, markets and investors will be watching closely for the FOMC's review of expectations for future rate hikes throughout 2017.

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The almost predictable interest rate rise by the Federal Reserve This week in United States It failed to have a significant impact on the price of EUR / USD last week, which remained virtually unchanged.

 

El euro It was slightly boosted by the optimistic tone of the statements of Draghi, following the meeting of ECBas well as by the growing confidence of the markets that Macron be the next French president. As a result, both the dollar and the euro recovered strongly against other major currencies.

 

The biggest losses in the market foreign exchange were seen on the coins of emerging marketsThe increase in profitability of United States Treasury bonds and the EurozoneThis, coupled with the general weakness of oil prices and other industrial raw materials, caused the depreciation of most of exotic coins.

 

What to watch out for this week?

 

This Wednesday marks the March monthly meeting of the Federal ReserveAlthough the latest payroll report of U.S. It points to a virtually certain rate hike; markets and investors will be watching closely for the revision of expectations for future rate increases throughout 2017 by the FOMC.

 

Another key event, also on Wednesday, is the meeting of the inhabitants of the Netherlands ahead of the polls to elect their next president. Markets expect the PVV and its far-right stance to remain out of government, as recent polls have indicated. However, the combination of the meeting of the Fed And the elections in the Netherlands could cause a week of great volatility, especially between Wednesday night and Thursday morning.

 

Main currencies in detail:

 

EUR

 

Last Thursday the ECB kept his monetary politicsas expected by the consensus. However, a modestly more optimistic tone was glimpsed. The president Draghi He acknowledged that the balance of risks to the eurozone economy had improved and declared victory for the Eurozone against deflation.

 

 

 

The euro was boosted slightly by the optimistic tone of Draghi's statements following the ECB meeting, as well as by growing market confidence that Macron will be the next French president.

 

 

 

As a result, the common currency was boosted on Friday, mainly due to hints in the Council report about the possibility of interest rates being raised before the end of the current period for QE measures. However, Draghi He warned that the improved inflation forecasts by the ECB They were subject to the "full implementation" of the QE policy, which tends to rule out the possibility of interest rates increasing in 2017.

 

This week, the biggest risk to the euro will be the Dutch elections on Wednesday.

 

GBP

 

The presentation of budgets in the United Kingdom Last week lacked major surprises. The pound traded in tight ranges and ended the week losing ground against the dollar and the euro, due to the contrast of positive news in both United States as in the Eurozone with respect to greater political risks related to Brexit.

 

This week will be key for the pound's medium-term performance. Article 50 appears set to be triggered no later than Wednesday. Furthermore, the European Parliament meets on Thursday. Bank of EnglandNo changes in monetary policy are expected, but as always, future expectations arising from the statements of the Monetary Policy Committee (MPC). Finally, the labor market report will also be released on Wednesday. Wage growth may exceed modest market expectations, providing much-needed support for the pound during this period of relative uncertainty. Brexit.

 

USD

 

Labor market data from United StatesConsistently stronger-than-expected inflation appears to guarantee an interest rate hike in the US on Wednesday night. It is expected that the Federal Reserve The FOMC is expected to decide to raise the benchmark interest rate by 25 basis points at its March meeting. This development is fully priced in by the markets, and therefore we expect a limited impact. Much more important will be the tone of the FOMC's communications and the press conference. President Yellen, after the decision.

 

In particular, markets are eager to gauge the reaction that the strength of the labor market, very close to full employment, the recent increases in core inflation, and the rebound in the stock market will have on the country's consumption and wealth.

 

Source: Ebury