Dollar Higher Ahead of FOMC Minutes

Fed notes and member comments to dominate light economic calendar

The notes from the February 1 Federal Open Market Committee (FOMC) meeting will be released on Wednesday, February 22 at 2:00 pm EST (7:00 pm GMT). The first meeting after the December rate hike brought little insights into the path the central bank intended to follow in 2017. The election victory did not derail the plans to hike rates more than three times in 2017 if anything it got a boost as he focused on his fiscal stimulus and infrastructure spending policies.

Fed speakers have been active in February with Chair Janet Yellen’s two day testimony putting in no uncertain terms that the central bank would rather hike sooner rather than later. The problem is that those statements don’t really commit to a timeline and are still dependant on economic data, leaving the Fed off the hook for the actual timetable of rate hikes. Last week the Richmond Fed President made the comment that: “Rates need to rise more briskly than markets now seem to expect,” but that has done little to change the expectations of the market with a close to 80 percent probability of the Fed standing pat in March as per the CME FedWatch tool.

The release of the minutes and speaking opportunities from four Fed members will make the central bank decision on March a big talking point this week. Political risk is still high as Trump’s administration has not given more details on his plans for pro-growth policies to be put in place as he alluded to after winning the White House last year. Interest rate divergence expectations based on higher inflation boosted the USD across the board, but with lack of commitment from the U.S. government the dollar rally has lost momentum.

EUR/USD lost 0.583 percent in the last 24 hours. The single pair is trading at 1.0548 after comments from Fed members put a March rate hike as a strong possibility. The market is still not fully convinced as the CME FedWatch tool still shows 77.9 percent probability of the rate remaining unchanged on March 15. Fed comments have pushed the chances higher as before the weekend it was 82.3 percent, but not enough that the majority of the market is convinced about the Fed’s next move.

European political uncertainty has kept the euro under pressure despite surprisingly strong flash PMIs. France had mixed Service and manufacturing advanced data, but Germany and the Union as a whole beat expectations in both. Upcoming elections in the Netherlands, France and Germany have investors on edge as anti-union parties are making inroads in political spheres putting in jeopardy the very existance of the euro.

West Texas Oil gained 1.203 percent in daily trading. The price of energy is trading at $54.09 after U.S. markets were back from the Presidents day holiday. The main driver of the rise of energy prices is the Organization of the Petroleum Exporting Countries (OPEC) comments on the success of the oil production cut agreement. The OPEC secretary is hoping more producers joins the agreement as there is a rumoured extension the group is working on reaching given the results of the current deal.

The price of energy has not had a massive gain on the OPEC deal given the lack of demand growth around the globe. It has recovered from its lows around $27 per barrel, but its from from the $100 it could command in 2013. The technological disruption that was borne from high prices made shale drilling a true competitor to traditional methods. Given that demand has not increased substantially and the OPEC deal is only for six months the threat of oversupply is still keeping crude prices around the $50 levels.

The U.S. crude inventories will be released on Thursday, February 23 at 10:30 am EST (3:30 pm GMT). Stocks have been rising since the start of 2017 with that trend expected to continue putting downward pressure on the price of energy.

Market events to watch this week:

Market events to watch this week:

Tuesday, February 21
4:30pm AUD RBA Gov Lowe Speaks
Wednesday, February 22
4:30am GBP Second Estimate GDP q/q
8:30am CAD Core Retail Sales m/m
1:00pm USD FOMC Member Powell Speaks
2:00pm USD FOMC Meeting Minutes
Thursday, February 23
8:30am USD Unemployment Claims
11:00am USD Crude Oil Inventories
1:00pm USD FOMC Member Kaplan Speaks
5:30pm AUD RBA Gov Lowe Speaks
Friday, February 24
8:30am CAD CPI m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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