Dollar Obsession Persists Ahead of Yellen Commentary

The market obsession over the outlook towards a March rate hike took hold of the markets and the Dollar through the early part of the day, the Dollar Spot Index easing back from a December high through the Asian session to an intraday low of 101.97.

We’ve heard a number of FOMC voting members speaking through the week, with even dovish voting member Brainard supportive of a rate hike in the near-term.

Macroeconomic data out of the U.S on Thursday was limited to the weekly jobless claims figures, with initial jobless claims falling to 223k, certainly a number that the Committee will be more than comfortable with ahead of next Friday’s nonfarm payroll and wage growth numbers.

So, it’s all about Yellen today, the markets now waiting on the FED Chair to have the final say on the possibility of a March rate hike, the foot soldiers having laid the groundwork before members go into the blackout period ahead of the 14-15^th March meeting.

Ahead of Yellen speaking, perhaps appropriately scheduled late into the U.S session, voting members Evans and Powell will also be giving speeches, which could add to the upbeat sentiment, though the impact of both will be relatively limited on the direction of the Dollar, Powell’s speech coming less than an hour before both Fischer and Yellen are scheduled to speak, while Evans has maintained a more dovish outlook on the path of interest rates, only a shift to a more hawkish outlook likely to have an impact. It would be quite a coup should all the doves talk up a move this month…

Economic data out of the U.S this afternoon includes service sector PMI figures for February and, while the markets will be looking ahead to Yellen’s speech, an uptick in service sector activity will provide the markets with more reason to take a more optimistic outlook on Yellen’s position.

Across the pond, service sector PMI figures for February are scheduled for release out of the UK, forecasts of a fall pulling the pound into the red, though any upbeat numbers are likely to have a relatively short lived impact on the pound, market sentiment towards the vote by the House of Lords on Brexit continuing to weigh, with cable down 0.06% despite weakness in the Dollar.

The good news is that there’s been little noise from the Oval office to distract the markets from assessing the likelihood of a rate hike this month.

The Dollar obsession has left commentary on the EUR and the European economy largely on the side lines through the week, but following February’s prelim inflation figures, released on Thursday, which hit the ECB’s 2% target, the outlook towards monetary policy will likely see a shift. The uptick in inflation was not solely down to the uptick in crude oil prices, questioning the ECB’s view on inflation. Recent economic data out of the UK certainly should be a warning signal to the ECB to not brush aside rising inflation. German retail sales fell for the 3^rd month in a row in January, despite forecasts being for an increase. The trend will be a concern, particularly with the German labour market so stable.

A shift in sentiment towards a possible tapering of the asset purchase program could see the EUR support, should Yellen hit the green light overnight. The ECB’s monetary policy decision for March is next week, ahead of the March FOMC meeting. Will a green light from the FED Chair add to the prospects of a shift in monetary policy by the ECB?

The Dollar Spot Index stands at 102.05 at the time of the report, down 0.15% with a run towards 103 levels likely ahead of the close, but Yellen will need to be clear.