Markets continue to react to key events with last week’s meeting of the Federal Reserve still impacting on traders’ outlook of US Treasuries and the dollar, and with a number of FOMC members speaking in the coming days, this is likely to remain an important driver. We look at how events are impacting on the outlook for forex, equities and commodities this week.
With so many recent key fundamental developments it’s a good idea to try and gain some perspective. Firstly, a dovish hike from the Fed is hitting the dollar. Despite adding a third 25bps rise, the Fed disappointed the market as it barely touched its economic projections and dot plots. I believe that this is near term dollar corrective, but will leave room for the next dollar bull run. The lack of any real upgrade to growth numbers means that Trump’s fiscal expansion is still not factored into growth forecasts. Regional Fed surveys are expanding strongly, whilst the corporate tax cut is also yet to be accounted for. This may drive the dollar lower near term but lead to buying the near to medium term dip. However, there are question marks over the prospect of EUR/USD hitting parity after the Dutch election reflected a rejection of populism with liberalism coming out to vote in size. The implications for the French election are loose, but should still mean the struggle for Le Pen to win in the second round could be greater than previously thought. This should help to underpin the euro in the coming months. The politics of Brexit remain as complicated as ever with the EU threatening no trade talks until the Brexit bill has been finalised. Although Theresa May can now trigger Article 50 (now likely late March), the Scottish Nationalists have thrown another spanner in the works by threatening another independence referendum. Sterling upside remains limited.