(18 MARCH 2019)DAILY MARKET BRIEF 2:USD slides further ahead of FOMC meeting

(18 MARCH 2019)DAILY MARKET BRIEF 2:USD slides further ahead of FOMC meeting

18 March 2019, 13:25
Jiming Huang

Since March 8th, the greenback has been trading in one direction: downward. The dollar index, which tracks the performance of the US dollar against a basket of its peers, has lost more 1.30% in the days following the ECB meeting – and Draghi’s infamous dovish speech. On Monday morning, the modd was no different in the FX market, the back continued to retreat against the single currency with EUR/USD hitting 1.1351, its highest level since March 4th. Only the pound sterling was losing ground, thanks to heightened uncertainty stemming from the Brexit deadlock. GBP/USD slid 0.38% to $ 1.3240 during the early European session.

For now, it looks like investors anticipate the Fed would maintain its dovish stance, something with which we agree, and have therefore continued to load on equities. However, we believe that the market is under-pricing a potential massive downside revision to economic forecast. Indeed, the Fed will released an updated version of its forecast and given the lacklustre economic data that have been publish since the December meeting, there is little doubt it won’t be pretty. Therefore, we anticipate that both equities and the buck will suffer this week, as investors will be forced to price in slower economic growth and weaker inflation.

By Arnaud Masset

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