The USD strengthened on Wednesday as Federal Reserve members increased expectations of a rate hike this month, while US President Donald Trump offered Congress little details on his stimulus as some investors had expected.
Trump’s long awaited speech failed to deliver any significant insight as to the details of the awaited tax cuts and infrastructure spending projects. The markets have been pricing in for a long time the above, but failure to give details has resulted in stock markets halting their record run of 12 consecutive days of gains.
The market reaction was muted during and after Trump’s speech, however 2 other FED member’s comments were enough to cause a broad USD rally. Dudley and Williams both said that a March rate hike is a very likely option for the FED. The market is now pricing in a 70% chance up from 50% earlier in the day and 33% at the start of the week for a hike in March
The comments sent EURUSD to 1.0550 from 1.0630 and GBPUSD to 1.2360 (3 week lows) from 1.2470. A big reaction was also seen on the USDJPY which managed to add 200 pips, by having recovered from 111.67 to 113.70 at time of writing. Strength in USD is also notable against Canadian Dollar, which was dragged down by oil price yesterday.
Focus will now turn to economic data from the US, including personal income and spending, and ISM manufacturing, to solidify the strength in Dollar’s rebound. Fed will also release Beige Book report. Canada will announce rate decision which is widely expected to stay at same levels.