Market Overview

Sterling jumps sharply after BoE left monetary policies unchanged as widely expected. That is, benchmark interest rate was kept at 0.25%, asset purchase target was kept at GBP 435b. Most importantly, the decision for interest rate was not unanimous. Kristin Forbes voted for a 25bps hike. That's seen by the markets as sign of a split in the MPC with some policymakers getting more intolerant to the surge in inflation. As noted in the minutes, "some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted." On the other hand, the majority stayed cautious on inflation outlook as wage growth has been "notably softer than expected, despite a further fall in the unemployment rate". Also, "estimates of retail sales had weakened notably" and that other indicators were "mixed".

The responses to FOMC's announcement overnight were very clear. Stocks rebounded with DJIA gained 112.273 pts or 0.54% to close at 20950.10. S&P 500 rose 19.81 pts or 0.84% to close at 2385.26. NASDAQ jumped to as high as 5911.20, just missed record high at 5911.79 before closing at 5900.05, up 43.23 pts or 0.74%. Long term treasury yields, on the other hand, tumbled sharply. 10 year yield was rejected from 2.621 resistance and closed at 2.508, down -0.087 for the day. 30 year yield lost -0.066 to close at 3.106. Dollar index dips to as low as 100.43 and broke 100.66 near term support level, suggesting more downside ahead.

Dollar drops sharply after Fed hikes federal fund rates by 25bps to 0.75-1.00% as widely expected. The disappointment comes from effectively no upward revision in the projected rate path. The median projection of federal fund rates was held at 1.4% by the end of 2017, same as December projection. Median projection for rate by the end of 2.18 was held at 2.1%, also same as December projection. Median projection for rate by the end of 2019 was revised by a mere 0.1% to 3.0%.

Dollar weakens mildly again as markets are awaiting FOMC rate decision, economic projections and press conference. Headline CPI rose 0.1% mom, 2.7% yoy in February, up from 2.5% yoy and beat expectation of 2.6% yoy. Core CPI rose 0.2% mom mom, 2.2% yoy, down from 2.3% yoy but met expectation of 2.2% yoy. Retail sales rose 0.1% in February, above expectation of -0.1%. Ex-auto sales rose 0.2% , above expectation of -0.1%. Empire state manufacturing index dropped to 16.4 in March, down from 18.7 but beat expectation of 15.0. The data are mixed to positive but markets paid little attention to them.

Markets are holding their breath as the highly anticipated FOMC meeting awaited. DJIA's recovery lost steam and closed down -44.11 pts, or -0.21%, at 20837.37 after breaching 20800 briefly. S&P 500 also lost -8.02 pts, or -0.34%, to close at 2365.45. Both indices are holding above last week's low at 20777.16 and 2354.54 so far. 10 year yield stayed in tight range below recent resistance at 2.621 and closed down -0.013 at 2.595. Gold continued to engage in range trading around 1200. WTI crude oil dived sharply to as low as 47.09 but recovered to 48.50 for the moment.

Dollar rebounds broadly today and maintain gains after stronger than expected inflation data. Headline PPI rose 0.3% mom and 2.2% yoy in February, comparing to prior month's 0.6% mom and 1.6% yoy, above consensus of 0.1% mom and 2.0% yoy. Core CPI rose 0.3% mom, 1.5% yoy, up from 0.4% mom and 1.2% yoy, versus consensus of 0.2% mom, 1.5% yoy. In particular, GBP/USD drops through 1.2133 support as Sterling is sold off broadly on news on Brexit and revival of Scexit. Meanwhile, Yen is trading as the strongest major currency with buying interest seen ahead of BoJ meeting.

The financial markets are generally staying in tight range in Asian session today as traders await the heavy-weight events later in the week. US equities ended mixed overnight with DJIA closed down -22.5 pts, or -0.1% at 20881.48. S&P 500, on the other hand, gained 0.87 pts, or 0.04%, to close at 2373.47. Treasury yields also rose with 30 year yield gained 0.023 to close at 3.192. Meanwhile, 10 year yield gained 0.026 to close at 2.608. But both are limited below recent resistance at 3.197 and 2.621 respectively. Gold is trying to regain 1200 handle for the moment. WTI crude oil turned sideway after breaching 48 handle briefly. Dollar index is trying to draw support from 55 day EMA and is trading at 101.40 at the time of writing. Forex pairs are all trading inside Monday's range.

Sterling surges broadly today on news that UK Prime Minister Theresa May could trigger Article 50 for Brexit this week. The House of Commons is set to debate the Brexit bill today and there is hope for passing the bill unamended. The House of Lords has already approved two amendments to the bill last week, in particular to grant the Parliament a "meaningful vote" on the final agreement. Passing the of bills in Commons today would set the stage for May to start' her plan for a so-called "hard Brexit". And the announcement could happen as soon as tomorrow. GBP/USD is trading above 1.22 at the time of writing, comparing to last week's low at 1.2133. EUR/GBP is back at 0.872, comparing to last week's high at 0.8786. While Sterling recovers today, it's still holding below near term resistance against Dollar and Euro. Thus, it's maintaining bearish outlook.

Dollar weakens broadly today as markets await a busy week ahead with four central bank meetings. Fed is widely expected to hike interest rate by 25bps this week. However, such expectation should be fully priced in, traders are looking through the FOMC meeting and turning cautious. In particular, Fed's updated Summary of Projections (SEP) and the monetary policy outlook for the rest of the year would be crucial to Dollar's trend in near term. Technically, the dollar index could dip further towards 100.66 key near term support before FOMC announcement on Wednesday.

The set of strong non-farm payroll data from US should have finalized the case for Fed to hike interest rate this week. Dollar was indeed given a boost over last week and ended strongly. Nonetheless, the greenback was firstly overwhelmed by strength in Euro, and secondly retreated on profit taking. Overall, Euro ended the week as the strongest major currency as supported by upbeat comments from ECB president Mario Draghi as well as rate speculations. Dollar followed as the second. At the other end, Sterling was troubled by worries over the fading impact it depreciation last year on the economy, uncertainties over Brexit terms, and uninspired by UK budget. The pound ended as the second weakest major currency next to Kiwi.

Dollar weakens against Euro, Aussie and Canadian in early US session despite solid non-farm payroll report. The selloff is, at this point, seen as a sell-on-news move. Canadian dollar is supported by its own job data. The set of NFP should have done nothing to alter Fed's decision to hike interest rate next week. Nonetheless, without a surge in wage growth, the report doesn't add to the case for more than three hikes this year. Focus will turn to next week's FOMC meeting, with new economic projections.

Dollar is trading as the strongest major currency for the week as markets await employment data from US. The general consensus is that barring a disastrous non-farm payroll report, Fed will still hike interest rate in the FOMC meeting next week. It would be a big blow to the credibility of Fed if they don't deliver after the chorus of hawkish messages. Nonetheless, the NFP numbers, including the headline job growth and wage growth, are still important for Fed to determine the policy path for the year. FOMC members generally maintained the expectation of three rate hikes this year. But now that the first hike will likely be done next week, there is indeed possibility for four hikes should the economy perform well with boost from US president Donald Trump's expansive policies.

Euro hesitates initially after ECB kept monetary policies unchanged today as widely expected. Markets seem to be unsure about the relatively slight revision in 2018 and 2019 inflation projections. Nonetheless, the overall cautious yet positive tone in president Mario Draghi's press conference is giving the common currency some support. EUR/JPY took out 121.32 resistance earlier today and stays firm. EUR/AUD is also extending recent rebound. At the same time, while EUR/USD rebounds, it's bounded in recent range of 1.0493/0630 and maintains a neutral outlook. EUR/GBP breached 0.8694 temporary top earlier today but lack follow through momentum. Euro traders would likely turn their focus back to politics once the impact from ECB fades.

Euro trades mixed as markets await ECB rate decision and press conference. The common currency trades in red against Dollar but weakness is limited so far. EUR/USD is bounded in range of 1.0493/0630 without a clear near term direction yet. ECB is widely expected to keep policies unchanged even though headline inflation finally hit the 2% target for the first time since 2013. Political uncertainties in Eurozone will keep policymakers' hands tight. And the uncertainties include elections in France, the Netherlands and Germany. Also, the deal with UK on Brexit is basically unknown at this point.

Dollar jumps sharply in early US session on much stronger than expected job data. ADP report showed that private payroll grew by 298k in January, comparing to consensus of 184k. Prior month's figure was also revised up from 246k to 261k. The data affirmed general expectation of a solid non-farm payroll report to be delivered this Friday. And that would solidify the case for Fed to deliver the highly anticipated rate hike next week. Also released in US session, Q4 non-farm productivity was finalized at 1.3% while unit labor costs at 1.7%. From Canada, housing starts rose 1k to 210k in February. Building permits rose 5.4% mom. Labor productivity rose 0.4% qoq in Q4.

Sterling weakens broadly yesterday and is trading as the second weakest major currency for the week at the moment. The House of Lords in US passed an amended bill on Brexit yesterday after having the highest turnout since 1831. The vote was passed by 366 to 268 to add addition condition to the so called "European Union (Notification of Withdrawal) Bill". That demands a guarantee of "meaningful vote" by the Parliament on the outcome of Brexit talks. And it's seen by analysts as securing veto power on any final agreements. The bill will now return to the House of Commons for deciding whether to accept the Lord's amendments. The debate could probably held on next Monday.

Dollar maintains overall gain in early US session in spite of weak trade data. Trade deficit widened to USD -48.5b in January versus expectation of USD -47.0b. That's a 9.6% rise from December's USD -44.3b and the largest figure in five years. Imports jumped 2.3% totalling USD 240.6b. Export, one the other hand, rose 0.6% to USD 192.1b. From Canada, trade surplus widened to CAD 0.81b in January. In the currency markets, Aussie remains the strongest major currency for today but momentum is unconvincing. Fresh selling is seen in Sterling as markets are starting to position for the Brexit negotiation, which should be triggered by the end of the month by prime minister Theresa May.

Yen pared back some gains and turned mixed as risk aversion recedes. Dollar also trades mixed as traders await fresh directions. On the other hand, commodity currencies recovered in general and sentiments stabilized. Mild weakness is seen in Sterling into European session but that's yet to be confirmed. In other markets, Nikkei stays soft for most of the day and ended down -0.18% at 19344.15. That followed profit taking pull back in US overnight as DJIA closed down -0.24% at 20954.34. Gold stabilized at around 1225 and turned sideway after dipping from 1264.9 since last week. WTI crude oil also stabilized at around 53.

The markets trade in mild risk aversion today and the sentiments sent Yen broadly higher. Meanwhile, Dollar regains some ground from Friday's profit taking pull back. The greenback stays supported by firm expectation of a March Fed hike. Nonetheless, the moves in the forex markets are relatively limited. Politics has been a stronger drive in the forex markets, as well as others since late last year. This view is shared by the BIS too as seen in it's quarterly report. For the moment, US fiscal policies, French elections, Brexit negotiations, as well as some geopolitical development like North Korea's firing of missiles will stay as important market drivers. Dollar will look into Friday's job report for sealing the case for a Fed hike..

The Japanese Yen jumps broadly in Asian session today on risk aversion as North Korea fired four ballistic missiles into nearby waters. Some analysts pointed out that the missile tests reminded the markets of the unpredictability of Kim Jong Un leadership. Japan prime minister Shinzo Abe warned that the missile launches "clearly show that this is a new level of threat" from North Korea". Nikkei responded by trading down around -0.5% at the time of writing and stays in red for the whole session. Yen surges against all most currencies today. In particular, USD/JPY's rejection from 114.94 near term resistance since last Friday maintains it's neutral outlook for the moment. Released in Asia, Australia TD securities inflation dropped -0.3% mom in February. Australia retail sales rose 0.4% mom in January, in line with consensus.