FX market outlook

FX market outlook

Yen rises after Japan GDP data; sterling weak ahead of UK Budget.

The yen was one of the better preforming major currencies today due to a bit of risk aversion in the markets. The US dollar edged slightly lower as investors took on a more cautious stance ahead of Friday’s nonfarm payrolls data. Meanwhile, geopolitical tensions due to North Korean missile tests also brought on some risk aversion.

Chinese trade balance data showed exports were weak and this was a bit disappointing. China reported a $9.15 billion trade deficit in February. This was in stark contrast to forecasts, which projected a $25.75 billion surplus. This is the first monthly trade gap for China since February 2014 and came on the back of surging imports with only a moderate increase in exports. The yuan is up for the day relative to the dollar and recorded a near eight-week high when dollar / yuan hit 6.9146.

Data from Japan showed the economy has expanded for four consecutive quarters. Japan’s fourth quarter GDP was revised higher from 0.2% to 0.3%, which is in line with Q3’s growth. This was the longest run in more than three years and helped give a lift to the yen.

The dollar edged down against the yen to a session low of 113.59 from the open of 113.95. Investors will likely stay on the sidelines ahead of the nonfarm payrolls report due on Friday.  Further gains in the greenback may be limited as the market has almost fully priced in a March Fed rate hike. The focus now shifts to the pace of the rate hikes, and how many times the Fed can hike this year.

The euro was steady against the dollar for most of the session, remaining below the key $1.0600 level. French election concerns continue to weigh on the single currency. Immediate risk for the euro will be tomorrow’s ECB meeting.

Sterling tested the key $1.2200 level but was unable to hold above it and dropped to $1.2173 by late Asian session trading. The pound fell came under pressure after weak consumer spending data added to concerns that the UK economy is slowing as it prepares to trigger Brexit. Focus turns to the UK Budget due today.

The Australian dollar rose to an early session high of $0.7608 against the greenback before easing down to $0.7563. On Tuesday, the aussie was lifted after the Reserve Bank of Australia kept interest rates on hold and gave an upbeat assessment of the economy, signaling to markets that rate cuts may be off the table this year.

Looking ahead to the rest of the day, the economic calendar is relatively light so the main focus will be on the UK Budget release.