Forex today: dollar stable and US yields rise

The forex space was a mixed bag today following last week's correction in the dollar and US yields in reaction to the nonfarm payrolls data. The dollar ended down 0.6% last week but was set to close higher leading into early Asia by 0.1%. Yields recovered from lows of 2.56% and again read at the 2.61% level ahead of the FOMC's announcements later on this week.  The market remains confident of a Fed rate hike on Wednesday and in fact, the April Fed fund futures are even higher now at 0.885% and implying a 105% chance of a rate hike on Wednesday. 

While the market was light on data, the currencies still offered opportunities. The pound was one of the better performers playing catch-up after lagging behind last week's closing moves vs the greenback. GBP/USD made a high of 1.2251 from 1.2148 lows. EUR/GBP was heading towards a break of the 0.87 handle to the downside with the pound tallying up circa 80 pips since European trade. The EUR was under pressure as well and fell from 1.0714 the highs to 1.0653. A number of factors could be weighing on the euro besides the certainty of a Fed hike.

The Dutch elections will kick in on the same day as the FOMC announcements and the concerns are that if Geert Wilders wins, it could be a fundamental foundation for the equivalent populist and French runner, Le Pen and renewed scepticism over the EZ project and euro. For today, the downside may have been helped along more so by the ECB’s Smets who announced that the monetary policy statement did not signal a change in stance. Elsewhere, USD/JPY wasn't offering as much action trading between 114.50 and 114.90. The Aussie was up from Europeans lows of 0.7533 to 0.7592 while the kiwi suffered bids in the greenback back to test  0.6920 support.

Day ahead

We have some 2nd tier data from Australia and China. For Australia, we have the Feb NAB business survey while from China, we have the Feb fixed asset investment, retails sales and IP:

Analysts at Westpac offered their previews of the data releases:

• "Australia: Feb NAB business survey surprised to the upside in Jan with business conditions rising to +16 – a high reading relative to its +5 average. Business confidence was also strong, up to a +10. On the other hand, reported retail conditions have remained persistently soft and it may be that changing seasonal influences (such as Lunar New Year falling in January rather than February) have elevated the headline figure. As such, Feb should pull back from current multi-year highs. RBA Assistant Governor Bullock speaks at 8:30am Sydney time at the Bloomberg Breakfast, with subsequent media Q&A.
• China: Feb fixed asset investment is expected by the market to rise to 8.2%yr from Jan’s 8.1%yr. Notable in Jan’s release was the absence of private sector activity. Feb retail sales last came in steady at 10.4%yr despite stronger employment gains and Feb Industrial production was 6.0% in Jan with recent PMI readings showing positivity on current activity and new orders."

Main topics in U.S. session

• US Dollar keeps 101.00, FOMC on sight
• UK PM May: The decision to seek a new independence referendum is "deeply regrettable."
• GBP/USD intermarket: yield spread to turn less negative on less hawkish Fed?
• FOMC preview: much of the same and a hike expected - Nomura
• Brexit: Article 50 will not be triggered this week - The Independent
• EUR/GBP: focus is on EU politics, bears in control, eyeing key 0.8600 level
• WTI struggling to extend gains above $48
• IFOP Poll: Macron to beat Le Pen in 2nd round 60.5/39.5 (unchanged) - LiveSquawk
• The exchange rate is more or less the result of the monetary policies - ECB's Weidmann
• Trump-Merkel meeting postponed to Friday
• UK lawmakers reject guarantee for EU nationals in Article 50 bill - RTRS
• AUD/NZD: resuming the multi-week rally targeting 1.1050 area - ANZ
• Gold moving sideways, supported by the 1hr 50-SMA