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USD/CAD Moves Higher on Hawkish Testimony from Powell

Published February 28, 2018
  • The greenback hit five-week highs against a currency basket today after Federal Reserve Chair Jerome Powell’s testimony a day earlier. His remarks bolstered expectations that the US central bank may deliver four rate increases this year, rather than the three it had earlier signaled. Expectations of rising borrowing costs tend to buoy the dollar, as higher rates make the US currency more attractive to yield-seeking investors. Mr. Powell declined to comment on the potential impacts of the Trump administration’s tax reform plan.
  • Global equities slumped after hawkish comments from Powell revived fears that interest rates will increase faster than expected this year. US stocks suffered their largest daily drops since a selloff three weeks ago, with the Dow Jones Industrial Average falling ~1.2%, or about 300 points.
  • Euro zone inflation slowed to a 14-month low in February, underlining the European Central Bank’s caution in removing stimulus despite growth exceeding expectations and the bloc’s economy seeming to be on its best footing in a decade. Inflation in the 19 countries sharing the euro slowed to 1.2% from 1.3% in January, in line with expectations but far from the ECB’s long elusive target of ~2%.
  • Oil prices have edged slightly higher ahead of today’s weekly report on oil supplies from the US Energy Information Administration at 10:30am EST.  At time of writing, Brent crude is up ~0.20% and WTI crude is up ~0.43% on the day, trading at $66.50 and $63.30/barrel respectively. The American Petroleum Institute said late yesterday that US oil inventories rose by 933,000 barrels in the week to Feb. 23. There are often sharp divergences between the API estimates and the official figures from EIA.