• USD under pressure
  • Houston, we have inflation
  • Euro rises as risk fades
  • Canada’s retail sector beats expectation

A weaker dollar remains a key theme as investors seem convinced that the Fed will not adopt a more aggressive timeline to raise interest rates. In a week peppered with Fed speakers, yesterday’s speeches from Fed members Evans and Harker both leaned towards the hawkish side, but it had little effect on currency markets. If the Fed does intend to raise rates faster than anticipated, they may need to do a repeat of the events leading up to the March meeting. Investors took quite a bit of convincing to believe that the Fed was ready to hike rates in March, and many of the FOMC members had to deliberately cultivate this view through very hawkish rhetoric before markets were ready to price this in.

Political risk tied to the French election continues to ebb after Emmanuel Macron emerged the victor in the first televised debate for the French presidency. With 9.8 million viewers, post-debate snap polls showed Macron carrying the lead over far-right candidate Marie Le Pen. The prospect of a Le Pen victory had unsettled financial markets, and even as she galvanized her voter base with bold statements about anti-globalization and a ban on all immigration, she failed to capture much of the 40% of French voters who are undecided.

For the first time in more than three years, UK inflation has shot past the Bank of England’s 2% target in February. At 2.3% year on year, inflation could easily continue higher as Brexit depresses the value of the pound and oil prices rise. This could spark further debate within the Bank of England on whether monetary policy is on the right path. In their most recent meeting, dissenter Kristin Forbes voted to hike rates rather than keep them on hold. Forbes cited a notable move up in inflation as the logic behind her move, noting that other members of the committee were already considering a reduction in monetary stimulus. If the numbers continue to pick up, we may see more members within the BoE rallying behind her.

Canadian retail sales doubled investor expectations, up 2.2% in January. It was the biggest monthly increase in almost seven years, and an impressive jump from the -0.4% decline in January. Gains were led by purchases of motor vehicle and parts dealers – especially in the new vehicle space. USDCAD has pushed below 1.33 and the loonie remains firm.

EURUSD:   Euro broke above 1.08 against the dollar as European political risk unwinds and the dollar remains weak.

GBPUSD:  Sterling rises with inflation, pushing GBPUSD up more than a cent from early morning lows.

AUDUSD:   Aussie dollar slightly higher after a mixed morning – USD weakness looks to be the culprit.

USDCAD:  Canadian dollar up about a cent against the greenback after retail sales smashed expectations.