USD plunged on Tuesday, the dollar index breaking the significant support line at 100.00 and further testing the next major support at 99.50. The downtrend was held temporarily above that level.
Last week the dollar index fell by 1.3%, marking the worst weekly performance in the past 8 months. Regardless of the rebound in February, the dollar index has retraced approximately 2.1% since the beginning of this year because of profit-taking pressure post the US presidential election surge.
Recently, several investment banks have turned their USD outlook from bullish to bearish, and cut their USD long positions. Market concerns over the uncertainty arising from the Trump administration also pose downside risk on USD. The recent Fed comments were not as hawkish as markets expected. Additionally, the ECB’s recent hawkish tone also weighing on USD.
The price range between 99.00 – 99.50 of the dollar index is likely to provide a stronger support. However, if this zone is broken, we will likely see a further USD sell-off.
On Tuesday, New York Fed President William Dudley (a FOMC permanent voting member) stated that “bank culture needs to be improved”. However, he did not comment on the future prospective of rate hikes.
This comment was followed by Kansas Fed President Esther George (a non-voting member) stated that “it is a critical time for the Fed to remove some of monetary stimulus to prevent the economy from overheating”. However, the Fed needs to be cautious on tightening. She also made no comment on future prospective rate hikes.
UK inflation data for February was released on Tuesday March 21st. UK CPI rose to 2.3%, with core CPI rising to 2.0%, for the first time surpassing the central bank’s 2% target since January and July 2014 respectively. UK inflation has been mainly lifted by weak GBP and the rising cost of fuel.
GBPUSD rallied more than 70 points after the release of the data testing the next significant resistance level at 1.2500. GBP has seen its longest bullish streak since January helped by the increased market expectations on a prospective rate hike led by the recent events: BoE’s MPC member Forbes voted for a rate hike in March, and the above 2% inflation readings. However, weak wage growth is one of the BoE’s major concerns over rate hike.
The UK still needs to face 2-years of political uncertainty before the final Brexit deal is made with the EU. Bank of England President Carney commented that “markets shouldn’t overact on one month’s data”. It will take an extended period for the markets to have a broader scope for the UK economy performance during Brexit negotiation.
Today is relatively light on economic data releases. US EIA crude oil inventory (the week ending March 17) will be released at 14:30 GMT. The Reserve Bank of New Zealand interest rate decision, at 20:00 GMT.