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US dollar set for strength as interest rate increase predicted

13th March 2017 Market Update

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🇬🇧 GBP – A lack of UK data hurt the pound last week, with ongoing uncertainty surrounding the triggering of Article 50. Stronger than expected growth figures delivered in Wednesday’s budget did provide some short relief but Sterling ended the week at 7 week lows against the euro.

Average earnings will be released on Wednesday morning and will be judged against recent inflation figures. The key event of the week will be Thursday’s Bank of England interest rate decision, where movements will depend on Mark Carney’s tone in the statement.

🇪🇺 EUR – Eurozone growth figures remained as expected on Tuesday as the euro continued its recent march against the pound. Draghi boosted the euro with a hawkish tone in his statement following the decision on Thursday to hold interest rates and QE at their current level. He dropped comments on “all instruments” being available for further crises.

Draghi frustrated German bankers calling for QE to be tapered. This will be repeated on Tuesday, with German inflation results published which have jumped significantly in recent months. Eurozone inflation figures are released on Thursday morning and could boost the euro if they meet or exceed expectations.

🇺🇸 USD – ADP employment results were positive on Wednesday and as expected, the Non Farm Payroll release followed suit on Friday. The Unemployment Rate fell to 4.7% on Friday, helping the greenback to finish strongly against the pound in a week of steady gains.

Wednesday will be crucial for the US this week with strong expectations of an interest rate increase from the Fed in the evening which could strengthen the dollar. Dovish Fed members have conceded that conditions are favourable for a hike. Inflation and Retail Sales data on Wednesday could support this further.

 

Key Announcements

🇬🇧 GBP
15/03/17 – 09:30 – Average Earnings.
16/03/17 – 12:00 – Bank of England Interest Rate decision and statement.

🇪🇺 EUR
14/03/17 – 07:00 – German Consumer Price Index.
16/03/17 – 10:00 – Eurozone Consumer Price Index.

🇺🇸 USD
15/03/17 – 12:30 – Retail Sales (expected at 0.2% from 0.4% previously).
15/03/17 – 12:30 – Consumer Price Index.
15/03/17 – 18:00 – Federal Reserve Interest Rate decision and statement.

 

Our View:The Federal Reserve look almost certain to deliver the first of their predicted three interest rate increases on Wednesday. The US dollar will most likely strengthen as a result and could put the pound under further pressure. Suggestions of Article 50 being triggered on Tuesday will undoubtedly make Sterling pairs volatile.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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