FXStreet (Córdoba) – In its statement on Wednesday, the Fed kept the door open to an interest rate rise in March, according to Esther Reichelt, analyst at Commerzbank, the USD is therefore becoming increasingly sensitive to the economic data. “A good labour market report next Friday should support the USD for now.”
Key Quotes
“At its January meeting, the Fed did not rule out an interest rate rise in March. The US dollar has not profited from this yet; US data and the situation on equity markets this year have so far given the market more reason to expect a rate pause in March. And the market remains cautious. Besides lasting calm on global financial markets, solid US economic data are a necessary prerequisite for the market to see any chance at all of a rate step in March.”
“However, the more bullish the upcoming data publications are, the more likely a move on rates should become and the stronger the US dollar should become. Against this backdrop, the data heavyweights due for publication in the week ahead should be able to offer the US dollar support initially.While the ISM index for manufacturing is expected to remain weak in next Monday’s release, it should have improved a little on December.”
“Ultimately however, all eyes will be on the labour market report on Friday, as the Fed gave the labour market a prominent place in its communiqué last Wednesday. Catch-up effects in wage growth in particular could lend impetus to the US dollar as the Fed needs urgent signs that inflation pressure is rising. However, this will probably not be enough to break out of the EUR/USD trading range of 1.0750-1.10 that has formed since the beginning of the year. The FX market is too cautious for that given the still moderate outlook.”
(Market News Provided by FXstreet)