US dollar declines as the FOMC starts its March meeting
The euro continued to gain against the USD as the Fed prepares to start its third monetary policy meeting of the year. This gain came even as Germany’s council of economic experts slashed its economic forecast for the year. The council expects the economy to grow by 0.8%, which is lower than their previous forecast of 1.5%. In their report, they said that while the period of accelerating growth for the country was over, the country’s chances of a recession were near zero. They said that the economy will continue to create jobs, with the unemployment rate expected to decline from last year’s 5.2% to 4.8%. This data came as ZEW released its sentiment data for the country. The economic sentiment for March was at -3.6, which was better than the expected -11.0. The current condition data was at 11.1, which was lower than the expected 11.7.
The US dollar index declined ahead of the Fed decision tomorrow. Traders expect the central bank to leave rates unchanged and announce that they will remain like that for the rest of the year. They also expect to learn more about how the Fed expects to shrink its $4 trillion balance sheet. The dovish tone of the Fed started after the December meeting, when the bank surprised the market by issuing a hawkish statement. Since then, officials have been talking about the need for patience.
The sterling saw some volatility today as Theresa May pondered what to do about Brexit. Yesterday, the Prime Minister suffered a blow when the speaker said that there will be no vote if the bill does not have major changes. Today, the minister responsible for Brexit said that the current deal was the only one on the table. In the statement, Steve Barclay said that the government would find a way of introducing the deal to parliament. Meanwhile, the jobs numbers released today were better than expected. Wages grew by 3.4% in February while the unemployment rate declined to 3.9%. An average of 322K people were employed in the past three months.
In Europe, investors are waiting for the progress on the merger of Deutsche Bank and Commerzbank. This week, the two banks announced that formal talks had started. These talks aim to combine the two biggest banks in Germany with the goal of creating a ‘national champion’ that will compete with other Western banks and provide financing to German exporters. In the past year, Deutsche bank has been the third-worst performing stock in the DAX, falling by 37%. This year, it has grown by 14% as traders look forward to a deal. In a blow to the merger proposal, ECB’s bank supervisor said that he was opposed to the idea of creating ‘national champion’ mergers.
The EUR/USD pair continued to rise today, reaching a high of 1.1360. This was along the upper line of the Bollinger Bands and between the equidistant channel shown below. The Accumulation and Distribution indicator has remained relatively unmoved while the Average Directional Index is currently at 22. The pair will likely continue moving upwards as it attempts to reach the important support of 1.1400.
The GBP/USD pair was little moved today as the complexities surrounding Brexit continued. The pair reached a high of 1.3310, which was close to where it opened. On the four-hour chart, the pair has been along this level for the past few days. This price is slightly below the 21-day and 42-day moving averages, while the RSI remains slightly below the overbought level of 70. The pair will likely remain along these levels as traders wait for more information on Brexit.
Gold price rose today ahead of the Fed interest rates decision, which is expected tomorrow. The XAU/USD pair rose to a high of 1310, which is above the upper line of the intraday Keltner channel. It is also along the upper band of the Bollinger Bands while the Bulls Power continues to gain. The pair will likely continue to rise although this could change depending on the Fed’s decision.