Daily FX Update, 22 March 2016

OVERNIGHT MARKET UPDATE:

·         US – Three Fed members (non-voters) flag potential for rate hikes:

-          Williams: expects a rate hike in April and June if all else is equal and data flow continues the way he expects.

-          Lacker: The latest reading of inflation in the US was firmer than expected, bolstering confidence that inflation will return to the US central bank’s 2% target.

-          Lockhart: “In my opinion, there is sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”

·         Euro area – The German economy will likely to slow down in the second quarter after showing steady growth in 2016’s first quarter, the Bundesbank said. In its monthly report, the Bank said “the German economy started 2016 with a lot of momentum, but a decline in the pace of economic growth looks to be on the horizon for the second quarter.”

·         Currencies – The USD continued to slowly regain ground lost last week as the three overnight Fed speakers talked up inflation prospects. GBP was weaker as political concerns weighed.

·         Equities – US stocks ended the session with small gains, but climbed enough to see the Dow log its longest win streak in months, while the S&P 500 reached its best close since late 2015.

·         Rates – US Treasury yields closed 4 bps highest across the curve as the market’s rate-hike expectations rose after the Fed comments.

·         Energy – Crude oil prices got a solid boost after data from market intelligence firm Genscape reportedly showed that stockpiles at the crude storage hub of Cushing, Okla., fell by 570,574 barrels last week.

·         Precious Metals – Gold prices settled below the US$1,250 per ounce as prominent Fed officials raised the possibility of an interest-rate hike as early as April. The gain of US dollar against broad currencies also putting some pressure on gold prices.