Daily FX Update, 30 March 2016

OVERNIGHT MARKET UPDATE:

·         US – Fed Chairwoman Janet Yellen defended the US central bank’s decision to move cautiously on interest-rates hikes given the risky outlook. “Global developments have increased the risks” to the outlook, with economic and financial conditions still less favourable than in December, Yellen said. “Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” she said.

·         US – The Conference Board’s measure of consumer confidence rose to 96.2 in March from 94.0 in February. The rise was driven by an improvement in the expectations series which increased to 84.7 from 79.9, with the present situation series deteriorating to 113.5 from 115.0.

·         UK – BoE's Financial Policy Committee (FPC) said the outlook for financial stability had worsened compared to last November, saying a rebound in Chinese lending was "concerning" and that June 23's Brexit vote was now the biggest domestic risk. The FPC also announced the tightening of credit checks on landlords and the increase in the countercyclical capital buffer to 0.5% by the end of March 2017.

·         Currencies – The US dollar slumped against broad currencies as Yellen’s dovish comments drove broad USD selling.

·         Equities – US bourses closed higher after Yellen’s dovish comment, with the S&P 500 and the Dow industrials rising to their highest close of 2016.

·         Rates – US Treasuries gained steadily before taking a further boost from Yellen’s comments. Both 2- and 10-year Treasury yields dropped to a one-month low of 0.78% and 1.80%, respectively.

·         Energy – Brent and WTI both dipped more than 2% amid expectations of higher US crude oil stockpiles. Iran indicated it will join talks in Qatar on 17 April, however it does not intend to join the proposal to freeze oil production.

·         Precious Metals – Gold traded higher after Fed chair Yellen cited ‘caution’ on rate rises. China’s February imports of gold from Hong Kong rose to 42.9t from 17.6t in January.