As expected, Federal Reserve Chairwoman Janet Yellen indicated that a March rate rise ‘would likely be appropriate’ if economic conditions were to hold.

That was very much in line with other Fed officers’ opinions and led to an even higher expectation – near 94% - of a 25bps rate rise in March, according to Bloomberg’s forecast. Most economists expect three 25bps rate hikes in 2017.

Yellen’s hawkish tone, however, failed to lift the US dollar. The Dollar Index March contact slumped 0.77% to the 101.4 area this morning, touching its 10-Day Simple Moving Average line, which serves as a near-term support level. The retracement was probably due to profit taking after a week’s rally. 

US indices closed nearly flat on Friday, giving little direction to the Asian open today. A weaker USD/JPY led to a lower opening for the Nikkei today. Other Asian markets are likely to continue this consolidation as the Fed’s tightening monetary policy looms, impacting on emerging market outflow. 

In the National People’s Congress (NPC) in Beijing over the weekend, China’s Premier Li said the country will cut its GDP growth target to 6.5% in 2017, which is its lowest level in 25 years. The projected target is in line with economic principles and will facilitate the country’s structural adjustments. USD/CNH closed at a two-month low in the 6.90 area on Friday.

Notable targets from Li's prepared remarks on Sunday included:

  • China targets 2017 GDP growth of around 6.5%
  • China targets 2017 CPI of around 3%
  • China targets 2017 budget deficit at 3% of GDP
  • China targets 2017 M2 growth of around 12%

USD/CNH


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