marctomarket.com / by Marc Chandler / Feb 17, 2017
The US dollar is finishing the week on a steady to firmer note against the major currencies but the Japanese yen. The softer yields and weaker equity markets often are associated with a stronger yen. For the week as a whole, the dollar is mostly lower, though net-net it has held its own against sterling, the euro and Canadian dollar.
An important takeaway from this week is the combination of mostly firmer US data (including February Fed surveys, and January CPI, industrial output and retail sales) coupled with clear indications from the Fed’s leadership (Yellen, Fischer and Dudley) that normalization process is likely to accelerate this year (from 2015 and 2016) but remain gradual. The implied yield of the March Fed funds futures rose a single basis point to 69 bp, while the implied yield on the June contract rose 3.5 bp to 85.5. The implied yield on the December contract rose five bp to 115.5.
Bloomberg calculates the odds that the Fed funds target range at the end of this year is 1.25%-1.50% (three hikes) is 26.5% up from 23.9% at the end of last week. One implication is that there is more scope to discount a third hike, which ostensibly would be supportive for the dollar.