Global Themes

Distilling the Fed message

  • Minutes show most members see a rate hike “fairly soon”
  • French politics realigns   

USD

Minutes show most members see a rate hike “fairly soon”
The USD dropped initially on the release before regaining most of those losses later to finish the overnight session broadly unchanged. Disappointment from the market over the lack of a clear intention to move in March should be offset by the timing and the neutrality of the minutes from the last meeting.

With news on policy and moves so limited recently it was no surprise a fairly neutral set of minutes created a reaction. The take away should be that the Fed still have rate hikes in mind, are still broadly cautious about falling behind the curve, and want to act “fairly soon”. There was mention that several members saw downside economic risks associated with a potential appreciation of the dollar. When we take into account the fact that these minutes were from a meeting a month ago, since which we have seen generally good data from the US and a lot less policy tweeting from the administration, and the fact that we have had so many Fed speakers reaffirming that “all meetings are live”, it is still reasonable to assume a hike in March is feasible. 

EUR

French politics realigns
The EUR saw a quick spike yesterday afternoon on the announcement from centrist politician Francois Bayrou that he will back Emmanuel Macron in an alliance. Polls had earlier indicated a small drop in support for Marine Le pen also.

EUR reversed from the technically important 1.0500 area late afternoon as Francois Bayrou said he would not run in the election but would back the overall favourite Emmanuel Macron. The move to reduce the different options for centre politic voters will be seen as a bigger challenge to Marine Le Pen in the second round of the election, reducing her odds of a win and removing one potential risk for the Euro. The first polls to be taken following this news will be interesting to see how much effect it has had with the people. Given that we had both the French news and the Fed minutes the rally in the EURUSD has been fairly modest. 

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