Dollar domination

The greenback continued its recent rally though yesterday. A combined boost of broader market risk aversion, coupled with hawkish Fed-speak, propelled the mighty dollar higher. The former has taken its cue from worries over Ukraine, with the latest sanctions by the U.S and Europe at the epicentre of market anxieties. Why these sanctions in particular? It is funny how markets have this habit of switching between being seemingly unconcerned to being completely obsessed with a story in a flash. Perhaps in this case, it is entirely feasible that those hawkish Fed speakers are the bigger driver to the dollar moves just now, as they queue-up to highlight the need for the Fed to battle inflation by raising rates, and reduce that bulging balance sheet whilst they still can.

March on

The latest FOMC minutes, released yesterday evening, certainly reiterated the Fed’s recent communication, and their serious consideration at raising rates by 50bps, at the forthcoming May meeting. The minutes suggested that ‘many’ (Fed members) were wanting a 50bps hike in march, but ultimately accepted the smaller hike given the war In Ukraine, so next time up looks a given for 50bps if the data holds-up.

Long-term lending

Big rate hikes can unsettle economies, and on that note, the recent reduction in U.S mortgage applications, is one to watch. With long-term (30 year) fixed rate mortgages now coming with a hefty 4.5% interest rate in the U.S, which is up over 2% in a year, some potential new home owners might pause for thought before committing to that long-term purchase. Indeed, some look to be pausing. Given historical bubbles being burst and all that, we need to closely monitor the trends in the U.S housing market for signs of what could potentially upset the apple cart, as the Fed move cautiously forward with hikes and the potential for rapid balance-sheet reduction.

The Dollar, indexed

Back to the dollar, and that broader dollar index really is on our radar just now. Having fluffed its lines near the 100 psychological region at the beginning of March, the DXY is now just a whisker away from having another shot at breaking above. Key to this move is EUR/USD, and the pair slipped back below 1.0900, before finding its feet yesterday. Today’s Euro-area Retail sales (for Feb) will likely impact the single currency. The latest estimates predict a 4.8% rise, down from the strong 7.8% gain In January, as much of Europe relaxed COVID rules.

Re-pounding

Sterling finally edged lower against the greenback yesterday, with GBP/USD moving back down to 1.3050, however, the pound is now back up over 1.3100 again this morning. Given the broader moves elsewhere, the moves highlight just how robust the pound has been of late. GBP/EUR moving back to 1.2000, gives further evidence, should you need it. Elsewhere, the gains for the greenback look pretty widespread, with USD/JPY hovering just below 124.00, USD/CAD back over 1.2500, and AUD/USD slipping back under 0.7500, having been as high as 0.7660 just the day before yesterday.

What else to watch?

ECB Monetary Policy Meeting Accounts, German Industrial production, U.S weekly Jobs, and another slew of Fed speakers are all up today. On the Fed speakers, we get Bullard, Evans and Bostic. The BoE’s Pill is also set to give a speech.