Dollar Slips as Traders Trim Bullish Bets Before Fed Decision

  • Markets seek confirmation of expectations for 3 hikes in 2017
  • Mexican peso surges as Peter Navarro seems to ease Nafta risk

The Bloomberg Dollar Spot Index erased its Tuesday advance as traders trimmed long positions ahead of the Federal Reserve’s policy decision.

Investors are expecting the Fed to raise interest rates and will be watching the central bank’s economic projections and statement for clues about the path of monetary tightening. After the dollar climbed for the last two weeks on expectations for a more hawkish Fed, bullish traders could be disappointed if policy makers urge caution.

  • With the FOMC expected to deliver a 25bps rate hike, focus is on the timing of the next hike and the path of future increases; markets will be looking to see if the Fed confirms or raises expectations for 3 rate hikes in 2017
  • Anything short of the current pricing or comments by Fed Chair Yellen in her 2:30pm ET news conference that walk back confidence about economic growth could trigger a further dollar selloff
  • BBDXY down ~0.3%, with dollar seeing biggest losses against the Mexican peso; the peso surged beyond its 200-DMA as Nafta risks appeared to ease with comments from Peter Navarro, head of the White House National Trade Council, who said the U.S. wants Mexico and Canada to unite in a regional manufacturing “powerhouse”
  • USD/CAD dropped to a session low below 1.3440 after the Navarro comments and as crude rose to a fresh high
  • USD was little moved by data that showed U.S. retail sales in February posted the smallest gain in six months, while consumer prices showed the biggest annual increase since 2012
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