The Fed's March meeting penalizes the dollar

Ebury Forex Market Analysis

Expectations that the Federal Reserve would maintain a solid stance on its future monetary policy were slightly disappointing after its meeting.

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The expectations that the Federal Reserve maintain a solid position in its monetary politics Futures were slightly disappointing after their meeting. Although they raised rates by 0,25% as expected, the members of the Fed Monetary Policy Committee They maintained their macroeconomic forecasts and projections for future interest rate hikes unchanged from the December meeting, which prompted a reaction from the dollar downward. Furthermore, the dollar's depreciation was supported by easing political fears in EuropeGiven that the Dutch anti-European party performed much worse than expected and polls place The Pen far behind their rivals heading into the second round of the French presidential elections.

 

The visible result was that, for the first time in months, the dollar fell against all other currencies. G10The conciliatory message of the Fed supported the appreciation of the currencies of emerging countries In particular, those that rose sharply were led by the Turkish lira and the African rand.

 

This week will be relatively quiet in terms of significant news. It is expected that the pound sterling We will react strongly to any potential surprises in February's inflation data, particularly if inflation proves stronger than expected despite the pound's weakness. Furthermore, we will be watching Friday's flash Purchasing Managers' Index (PMI) report to see if it confirms the broader trend of a rebound in the eurozone economy.

 

Main currencies in detail:

 

EUR

 

The political aspect remains the primary focus of attention in the Eurozone, without meetings of the ECB In plain sight. Last week, the news flow was quite favorable for the euro. The Dutch populist PVV party had a rather poor showing in the European elections, coming in second place with 13%, quite far behind the center-right VVD party. The Dutch establishment parties will have little difficulty forming a coalition that once again excludes the PVV.

 

Now that the most immediate political risks have dissipated, we expect markets to turn their attention back to economic data. The key will be to see if future inflation figures confirm the optimistic projections of the ECBIf underlying inflation does not rise, according to these predictions, we expect further signs of weakness in the common currency.

 

GBP

 

Last week, the pound received a very important, and much-needed, respite from the Bank of EnglandEbury's view that the market undervalues ​​the chances of a short-term rate hike received some support last Thursday when a member of the monetary policy committee of the Bank of England, Kristin ForbesHe cast a dissenting vote and called for an immediate rate hike.

 

The recent pound rally could still gain momentum if an upward surprise in inflation is announced this Tuesday. In any case, the upward trend in core inflation is expected to continue, and it is quite likely that more dissenters from the Bank of England will join Forbes' position in the near future. Given that the cumbersome process of Brexit With the pound at record lows, we believe the market has already priced in all Brexit-related risks and expect the pound to rise in the coming weeks.

 

USD

 

The relative 'calm' in communications of the Federal Reserve Last week, despite raising rates from 0,75-1%, it has resulted in downward pressure on the dollar and could continue in the coming days.

 

On the political front, discussions are taking place among Republicans regarding the terms of their rejection of the president's healthcare bill. Obama They are postponing expectations of a tax cut, as well as the announcement of significant infrastructure investments. The economic data release schedule is relatively sparse over the next two weeks, so we expect the dollar to trade volatile and within a tight range until the next payroll report is released on April 7.

 

Source: Ebury