The U.S. dollar is higher against most major pairs ahead of the Presidents Day long weekend. American economic fundamentals had a strong week, but failed to gain traction given the rise of political risk as Trump's Administration continues to send mixed messages to markets. The stock market and safe havens like gold and the Japanese yen finished higher against the dollar in a very political week.
The Federal Open Market Committee (FOMC) meeting in February reenergized the greenback and started the current USD rally. The minutes from that monetary policy meeting will be published on Wednesday, February 22 at 2:00 pm EST (7:00 pm GMT). Fed member comments since then have confirmed the high probability of multiple rate hikes this year, although according to the CME FedWatch tool the market remains unconvinced. Fed member Jeffery Lacker said that the market could be caught by surprise. The biggest threat to the dollar has been the political climate. Scandals on the national security front have raised red flags on the inexperience of the Trump administration.
The holiday on Monday will push the release of U.S. crude inventories back a day. The U.S. Energy Information Administration (EIA) will release it's weekly statistics on Thursday, February 23 at 10:30 am EST (3:30 pm GMT). The price West Texas has not been able to push above $54 despite the efforts of the Organization of the Petroleum Exporting Countries (OPEC) to communicate the success of their production cut agreement. The main factor keeping crude at current levels is the growth of U.S. production that have kept prices in a tight range for most of 2017 even as the OPEC have hinted at an extension to their six month deal.
The euro/U.S. dollar (EUR/USD) currency pair lost 0.518% in the last five days. The single pair is trading at 1.0613, which is a surprise given the very strong economic data out of the U.S. this week. Strong inflation, manufacturing and retail sales data along with hawkish words from Fed Chair Janet Yellen on her testimonies before congress should have the USD trading higher. Political scandals have made the French election even more unpredictable weakening the euro, but the so-called Trump rally has been derailed by Trump himself while softening on trade has increased anti-immigrant actions all the while not given enough details on pro-growth policies to boost the U.S. dollar.
Stock markets have been on a record run boosted by strong fundamentals and commentary from Fed members, but that optimism hasn't extended to the American currency. Fed Chair Janet Yellen provided the most quotable sound bite when she told the Senate banking committee that it would be unwise for the central bank to wait too long before hiking rates. The translation from Fedspeak to English diminishes the hawkish tone as the Fed Chair is only implying the Fed is ready to hike but more data is likely needed before making that decision. If U.S. fundamentals can continue to beat expectations like the latest releases it could be sooner rather than later for the first U.S. interest rate hike of 2017.