Currency markets witnessed a continuation of yesterday’s trend during the overnight session, one which is characterized by a resurgence in USD strength as a result of comments from Atlanta Fed President Lockhart. The key takeaway from Lockhart’s message was that in his view the US economy is ready to begin the process of monetary policy normalization, and that it would take a significant deterioration in data to deter him from recommending a rate hike at the September meeting. The hawkish comments from Lockhart took the markets by surprise given he is seen as a centrist on the FOMC, usually echoing the consensus viewpoint and not straying too far to either side of the hawkish or dovish spectrum. This is also a change in tone from his earlier comments in the year when he was inclined to take the risks of waiting as opposed to moving too early on raising rates, along with the fact that he qualified the FOMC’s last statement by saying the piece on “some further improvement in the labour market” was a way to convey to the market the Fed is getting close to beginning the tightening process. Consequently, the greenback rocketed into the close of yesterday’s session as traders and market participants added exposure to the big dollar, though focus has now shifted to ADP Employment Report and clues as to the overall health of the American labour market.
A notably outperformer in the currency space midway through the European session has been Sterling, with the pound eliciting strong demand ahead of tomorrow’s macro events. GBPUSD was able to shake off a somewhat disappointing service sector PMI earlier in the session, which came in at 57.4 as opposed to the 58.0 that had been expected. The potential for two to three dissenters at tomorrow’s Bank of England policy meeting along with a quarterly inflation report that upgrades the outlook has underpinned pound demand, with the GBPUSD pair being the best performing major as traders position themselves ahead of tomorrow’sreleases.
Read the rest of the article Lockhart boosts US dollar