The markets turn their focus on a lot of event risk this week, with the highlight being the FOMC meeting on Tuesday and on Wednesday. A light economic calendar today led market players to re-adjust dollar positions after the strong U.S. nonfarm payrolls report on Friday.
Profit-taking on dollar/yen was extended today after the pair rallied to a 2-month high of 115.49 on Friday. The greenback headed lower to touch an Asian session low of 114.50.
Investors are likely to remain sidelined despite a big expectation for the Fed to hike by 25 basis points this week, to lift the Fed funds target rate to between 0.75% - 1.0%. But what is more important is Fed Chair Janet Yellen’s statement and news conference as well as the Fed’s dot plots, in order to get more insight into how many rate hikes there could be this year. A sharp upgrade of the Fed's economic growth projections could lead to markets pricing in even more rate hikes than the three currently expected for 2017.
The euro extended Friday’s gains after it rose in reaction to market talk that the ECB might raise interest rates before the end of the QE program. There were rumours that this option was discussed at the ECB meeting last Thursday although this was not officially confirmed.
Euro/dollar hit a 1-month high of 1.0713 in late Asian session trading while euro/swiss rallied to its strongest level in three months at 1.0823. Further gains for the euro could be limited ahead of event risk. Dutch elections are on Wednesday. They will be closely watched as they could give an indication of what could happen in the French elections next month.
Sterling had a strong start to the week, rising sharply against the dollar to reach a session high of 1.2239. Focus will be on the outcome of the debate in the House of Commons today, where MPs will decide whether to accept two amendments added by the House of Lords to the EU Notification of Withdrawal Bill. Prime Minister Theresa May could trigger Article 50 to begin the Brexit process by Tuesday.
Oil prices are down today after having the worst week last week since November. The latest Baker Hughes rig count rose to the most since September 2015 according to the report out late on Friday. WTI oil fell 1% and traded as low as $47.89 barrel in Asia today.
Gold rose to a high of $1244.06 an ounce, helped by a broadly softer dollar.
Looking ahead to the rest of the day, the economic calendar is light, so focus will mostly be on the UK House of Commons debate today.