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February 21, 2018

Dollar Strengthens Ahead of Fed Minutes

Alaric Securities

The U.S. dollar remained on top for a third day in a row, in part helped by economic data that weighed on its rivals across the Atlantic, as U.S. traders are looking ahead to this afternoon’s release of the Federal Reserve’s January meeting minutes.

Where are currencies trading?

The ICE U.S. Dollar Index DXY which measures the buck against a basket of six rivals, climbed 0.3% to 89.949, adding on from its Tuesday gains. The broader WSJ U.S. Dollar BUXX meanwhile ticked up 0.2% to 83.77.

The British pound GBPUSD was the worst performer of the buck’s main rivals following economic data that surprised on the downside. The pound last bought $1.3914, compared with $1.3997 late Tuesday.

The euro EURUSD was also trending lower, slipping to $1.2306 from $1.2339.

The greenback continued gaining against the Japanese yen USDJPY though the pair remains it lows not seen in months, with one dollar last buying ¥107.56, up from ¥107.33 late Tuesday in New York.

Against the Swiss franc USDCHF the dollar rose to 0.9382 francs versus 0.9360 francs.

Back in North America, the buck also strengthened versus the Canadian dollar USDCAD buying C$1.2677, up from C$1.2647.

What is driving the market?

The dollar extended it upbeat streak on Wednesday even as Treasury yields TMUBMUSD10Y which provided a supportive backdrop on Tuesday, have stopped rising for the moment.

Investors are awaiting the Federal Reserve’s meeting minutes from January, to be released at 2 p.m. Eastern today, to shed further light on the central bank’s inflation and interest-rate expectations for the year. As of now, the Fed is expecting to lift rates three times, though analysts have begun upping their own forecasts to four hikes in 2018. That said, the minutes are of Chairwoman Janet Yellen’s final meeting before Jay Powell takes the reins at the Fed, so they are unlikely to provide groundbreaking changes in the Fed’s policy stances.

In the U.K., the unemployment rate unexpectedly rose for the first time in almost two years in the fourth quarter of 2017. Pushing the unemployment rate to 4.4%, this was the largest quarterly increase since 2013, and it took its toll on the pound.

Meanwhile on the European continent, Markit PMI data for February showed a slowdown across the board, in the eurozone’s manufacturing, services and composite data, which is seen as a knock the currency block’s spotless growth trajectory over the past months.

What are strategists saying?

“Although the [Fed meeting minutes] may be a bit dated as it happened before the recent turbulence in the markets, it may still inform the market given the recent hawkish bias from the Fed,” wrote Boris Schlossberg, managing director of FX strategy.

He added that besides reaffirming a widely anticipated march rate hike, “the market will be looking for more, most notably any hints that members may be revising the dot plot upward, which would be seen as very bullish for the dollar and could propel the dollar-yen pair through ¥108 by the end of the day as sentiment toward the buck continues to improve.”

What are the data?

An index that tracks U.S. manufacturers rose to a nearly 3 1/2-year high in February and a gauge for service-oriented companies hit a six-month peak, according to IHS Markit’s flash PMI. The manufacturing index rose to 55.9 from 55.5. The services barometer climbed to 55.9 from 53.3. Any number over 50 signifies expansion, and results above 55 are considered exceptional.

Article originally published by Anneken Tappe at