The dollar continued rising after yesterday’s strong ADP National Employment Report, which showed robust growth in private-sector payrolls. A rate hike during next week’s FOMC meeting is now considered near-certain as the odds of one materializing now exceed 90% based on CME Group’s 30-Day Fed Fund futures prices. It is now unlikely that tomorrow’s U.S. employment report will be weak enough to sway the Fed away from a rate hike.
The dollar index continued to advance and should it finish the day higher, it will mark the fourth straight day of dollar gains relative to major counterparts. Dollar/yen is currently up for the day after recording a three-week high of 114.75 the previous day. The dollar strengthened relative to the euro and sterling by about one-tenth of a percent as well, while Treasury yields continued to climb.
In Asian economic releases, Chinese producer prices for February beat expectations as they rose 7.8% annually, more than the projected 7.7% and January’s 6.9%. This marks the fastest pace of growth since just after the Beijing Olympics. Inflation figures were not as strong though, as the numbers came in below expectations. Specifically, CPI growth was at 0.8% year-on-year in February, missing estimates of 1.7% and January’s 2.5%. The data might have been affected by the Lunar New Year holidays. In regional equities, the Hang Seng Index and Shanghai Composite Index both marked their biggest decline in a month. Dollar/yuan renewed yesterday’s high for a new two-month high at 6.9307.
In commodities, the stronger dollar had a negative effect on prices as gold fell to a five-week low at $1203 an ounce. Rising U.S. government bond yields also weighed on the yellow metal. In energy markets, oil was trying to stabilize and hold the psychologically important $50 a barrel level after much higher-than-expected U.S. crude oil inventories depressed the price by more than 5% the previous day. The big build in crude inventories was counterbalanced by a steep fall in gasoline and distillate stocks, but the market chose to concentrate more on crude oil inventories and the stronger dollar in order to drive the price to a more than three-month low.
Focus during European session trading will be on today’s ECB meeting and subsequent press conference by ECB President Mario Draghi. The central bank is expected to maintained its asset purchase program and key rates as core inflation remains muted despite a pick-up in headline inflation numbers.