Good morning,
March rate hike still on the table
Yesterday’s currency markets were slower than a week in jail as well-worn influences knocked about in ranges that have an air of semi-permanency. EURUSD has crept below the 1.06 mark overnight following comments from Federal Reserve member Patrick Harker who told an interviewer that “I would not take March off the table at this point. We’ll have to see how it plays out in the next few weeks”.
A hike in interest rates in the States at the meeting on March 15th is currently priced in as a 36% probability and President Harker is one of the more vocal proponents of three rate hikes this year so his comments are not without form.
We are currently looking for two hikes from the Federal Reserve this year – one in June and the other in December – with a risk to September. The dollar can easily rally once these probabilities harden but increases in both wages and inflation are needed for those thoughts to solidify within the predictions markets.
Le Pen putting in some gains
The Euro has also weakened following a poll from France that shows that Marine Le Pen’s deficit in 2nd round voting in the French Presidential Election is tightening. While she is still forecast to lose to Francois Fillon 56-44 and to Emmanauel Macron 58-42, their leads have been cut in the past 6 weeks.
As someone here pointed out to me yesterday given the performance of polling in recent elections, he should bet the house on Le Pen. While Brexit and Trump both caught the market on the hop last year, I think that polls and the market reaction to said polls have a better handle on the European political risk this year compared to last year’s political turmoil. Marine Le Pen and PVV Leader Geert Wilders – the far-right leader in the Dutch elections – have been members of the European political class for a number of years unlike Trump and campaigned on issues familiar to the electorate unlike Brexit. The French electorate know her game too well I think.
The Dutch election is on March 15th with the first round of the French on April 23rd and the 2nd round on May 7th.
The Day Ahead
Today’s markets will focus on the preliminary runs of the PMI data from the services and manufacturing industries of the French, German and Eurozone economies. Bank of England Governor Mark Carney is due in front of the Treasury Select Committee this morning and will likely emphasise that the recent softness would be worse without the Bank’s decision to cut rates in August. With an ill wind of UK economic data behind him Carney will be in control of the discussion and would represent a risk to the pound.
He speaks at 10am.
Have a great day