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U.S. Dollar Boosted by Euro Plunge and Hawkish Fed Talk

By:
James Hyerczyk
Updated: Feb 22, 2017, 01:47 UTC

March U.S. Dollar Index futures surged on Monday, boosted by a steep drop in the Euro that was fueled by political uncertainty in Europe and hawkish

US Dollar

March U.S. Dollar Index futures surged on Monday, boosted by a steep drop in the Euro that was fueled by political uncertainty in Europe and hawkish comments from Federal Reserve officials.

Late Monday, Cleveland Fed President Loretta Mester said she would be comfortable raising interest rates at this point if the economy maintained its current performance. This hawkish talk carried over into Tuesday, triggering a gap higher on the opening. Later in the day, the Greenback received another push higher after Philadelphia Fed President Patrick Harker said a March rise was on the table.

Later on Tuesday, Harker will deliver another speech. Investors are also scheduled to hear from San Francisco Fed President John Williams.

Profit-taking or position-squaring may set in near the close as investors prepare for the release of the Fed monetary policy minutes from its February meeting.

The EUR/USD weakened on Tuesday, driven lower by growing political risk. Investors were reacting to anti-European Union rhetoric from French presidential candidate Marine Le Pen and Dutch candidate Geert Wilders ahead of the first round of French elections on April 23 and the Netherlands’ March 15 parliamentary election.

Gold

April Comex gold recovered late in the session after early session weakness. The precious metal was pressured by expectations of an increase in U.S. interest rates in March, but was able to find support because of the political uncertainty in Europe.

In other news affecting gold prices, Investor money is flowing into the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund. Holdings have risen by more than 5 percent to 27.044 million ounces since January 31.

The recent price action suggests that gold traders are learning to accept the notion of higher interest rates. Buyers continue to shrug off that potentially bearish news, with their primary focus on the political uncertainty in Europe. This resilience can also be seen in gold’s reaction to rising U.S. equity markets.

U.S. Equity Indexes

All four major stock indices, ranging from broadly-based to small-cap, posted new record highs on Tuesday. The catalyst behind today’s rally was strong earnings although the naming by the Trump administration of new national security advisor certainly helped boost investor confidence.

Economic News

In economic news, U.S. Flash Manufacturing PMI came in at 54.3, below expectations and the previous read. Flash Services PMI also missed the mark with a reading of 53.9. The “latest survey data indicated that business optimism moderated among U.S. private sector firms in February, driven by weaker confidence across the service economy,” HIS said.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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