Europe was closed for Easter Monday and the Euro had the lowest volume since the day after Christmas. After opening higher Sunday night and trading more than a halfpenny in the green, the Euro pared all gains to make a new low before settling near the middle of the session’s range.
Ahead of Friday's U.S. jobs report, the U.S. dollar/Swiss franc (USD/CHF) currency pair has been among the strongest dollar pairs. This has been mainly due to a slumping Swiss franc rather than a rallying U.S. dollar. Indeed, the EUR/CHF and GBP/CHF have both been rising while the CHF/JPY has been falling of late. The Swiss franc remains fundamentally weak owing to a dovish central bank.
It’s a “King CAD” kind of day in the FX market, with the loonie rallying against all of her major rivals. The proximate catalyst is (wait for it) the latest scuttlebutt about the North American Free Trade Agreement (NAFTA).
It ’s often a complicated question, and when it comes to markets, the “why” often takes a backseat to the “what” that is happening and “how” it should be traded. Nonetheless, it can be worthwhile to understand why a market relationship occurs, so that you can adjust more quickly than the competition when the relationship inevitably changes.
This was a monster session for the Euro gaining almost a penny. The move started early this morning when French GDP beat expectations and picked up further steam on hawkish comments from German Bundesbank President Weidmann. The yen took a bath today after crossing the .9600 mark on Friday for the first time since November 2016. The dollar was surely not culprit today as the yen was the only currency to truly lose ground against it.
The Federal Reserve raised rates a quarter point as expected this afternoon. However, they continued to project only three hikes this year while many speculated a fourth will be added. Citing a stronger economic outlook in the face of dismal February data, they raised their growth forecast for 2018 and 2019. The Fed did increase next year’s rate-hike projections to three from two. But still, the U.S. dollar got hammered. We have been discussing the impact of perception for months now.
The dollar rebounded today against all major currencies as tomorrow’s FOMC Meeting comes into focus. This price action started early on poor reads from UK inflation and German and Eurozone Sentiment data.
The British Pound immediately weakened against the dollar on Tuesday morning after UK inflation fell more than expected in February. Consumer price inflation eased to a 7-month low at 2.7% in February, down from 3% in January, as the impact of Sterling’s Brexit-fuelled selloff faded.
If sterling were to climb higher next week then its best bet would be against a weaker currency like the Swiss franc. The franc weakened a little yesterday after the Swiss National Bank reiterated its commitment in keeping monetary policy extremely loose and intervening in the forex market if necessary to weaken the currency. Thus, the British pound/Swiss franc (GBP/CHF) currency pair remains fundamentally supported.