The Dollar gained yesterday and this morning after a Fed member reiterated that he is open to a March rate hike (expectations are for May). The Dollar Index, which measures Dollar’s strength against a basket of major currencies, rose to 100.25 from 99.20 last week.
The Dollar gains were evident mostly against the Euro as ECB President Mario Draghi noted that the central bank would not react to temporary spikes in inflation. Prior to the meeting, many market participants hoped that Draghi would hint a limit to the asset purchase program due to higher inflation lately, but that was not the case. The EUR/USD was also hit by French far right Presidential candidate Marie le Pen who started her campaign yesterday by stating that she would exit Eurozone. EUR/USD trades at 1.0695.
As a result of EUR weakness, EUR/JPY reached its lowest in a month (119.58). USD/JPY was under severe pressure yesterday due to the global risk averse sentiment which pushed stock markets lower. USD/JPY reached a 6-week low at 111.60, which seems to act as a support level now. USD/JPY currently trades at 111.85.
Gold continued its march higher unfazed by overall Dollar strength. Gold reached the critical resistance level of $1235 and stabilized there. A possible break would open the way for $1250.
Looking ahead, we have a light calendar of risk events for the dollar. With an unclear picture from the FOMC and payrolls last week, it’s likely we remain in a broad holding pattern until Yellen’s speech next week.
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