Dollar Weaker as Attention Moves to Fed

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The U.S. dollar came under widespread pressure overnight but is attempting a modest comeback in early trading during our session.

Overview

The Japanese yen rallied across the board and jumped for a third day as yesterday’s rout in global equity markets continued into the Asian session and boosted the safe-haven currency. The New Zealand dollar also climbed over a percent as a report showed that business confidence rose to the highest in eight months.

Attention is fixed on the Federal Reserve that starts their two-day meeting today. The central bank is widely expected to hike interest rates by a quarter of a percent tomorrow, even as the economy faces headwinds. Expect heightened volatility tomorrow afternoon during Chairman Powell’s press conference as traders assess a possible new, more dovish rate path for 2019. Powell is likely to duck questions over criticism the central bank has received from the President. Trump argues that the Fed should not raise interest rates that could slow down the economy despite the executive’s inflationary policies such as the corporate tax cuts, ballooning deficit and the trade war with China.

This morning’s economic docket has had little effect on currency markets. Housing starts improved by 3.2% in November, beating estimates. However, October’s print was downwardly revised meaning the aggregate was a “push.”

What to Watch Today…

  • • No major events scheduled for today.

EUR

The common currency benefited from a weak dollar environment overnight, shrugging off disappointing domestic data. German business sentiment dropped to its lowest level in two years, limiting the Euro’s gains. We will be keeping a close eye on developments with the Italian budget as a revised budget nears a vote in Italy. Over the next 36 hours, EUR/USD is likely to take it cues from Federal Reserve headlines.

GBP

The sterling took a backseat to the U.S. dollar overnight, which allowed the sterling to move modestly higher. A Brexit deal seems as far away as ever after Theresa May failed to win any other significant concessions from the European Union. News reports and rumors are swirling that Prime Minster Theresa May may face a vote of no-confidence in the government. May survived a no-confidence vote within in her own party just last week. As we await a meaningful vote in Parliament next month, GBP/USD will continue to swing with headlines.

SOURCE: TEMPUS https://goo.gl/SyfjBh

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