As we feared, the first day of March began with more weakness for currencies and equities. At the beginning of the session in New York, investors were hopeful that actions by stronger data will be recovered, but among the latest comments from the Fed and fares President Trump on imports of steel and aluminum, stocks fell and they ended the day sharply lower. All this sent the USD / JPY below 106.50, GBP / USD to lows of 6 weeks AUD / USD to lows of 2 months and maximum of USD / CAD for two months. The plan Trump to impose tariffs of 25% on steel tariffs of 10% on imports of aluminum meets the president’s promise of tough sanctions, but also infuriates countries like China, which could retaliate and start a trade war.
comments from Fed Chairman Powell and FOMC Member Dudley also revived concerns about the negative impact of tighter monetary policy. In testimony before the Senate Powell spoke about the possibility of higher wages and higher profits in the labor market, but it was Dudley who wowed everyone when said four rate hikes of 25 bp “would remain gradual.” This suggests that there will be upward revisions of forecasts later this month. Normally, the USD / JPY should benefit from the prospect of tighter monetary policy, especially when the ISM data surprise to the upside, but right now nothing matters more than the risk of future trade wars. If USD / JPY breaks next level 106 should be 105.
There was nothing exceptional in today’s movement in EUR / USD out of the fact that he had support at 1.2165. The single currency rose to reports that the European Central Bank will not change demonstrating their guide when they meet next week and instead postponed the announcement until the summer. Given the recent deterioration of data from the euro zone, this would not be a surprise, but disagrees with the consistently positive comments from ECB officials. Unfortunately, despite the recovery today, the EUR / USD is not out of danger. Italian elections this weekend and the results of the vote of the German SPD pose a significant risk for the currency.
On the other hand, the pound fell for the third consecutive trading day before the big speech of Prime Minister May. According to his spokesman, May had a constructive meeting with President of the European, Tusk Council, but in the best case, May seems eager to have a deeper discussion on the terms of the EU, which fosters the hope that the Brexit negotiations back on track. If completely reject proposals or does not provide significant details, investors could express their disappointment by sending GBP / USD to 1.36. GBP / USD
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