Trump offers little detail on stimulus but Fed hike likely

The dollar ticked up on Wednesday as Federal Reserve policymakers fanned expectations of a rate hike in March. Meanwhile, US president Donald Trump offered Congress fewer details on his stimulus then some investors had expected.

The greenback extended gains against the yen, last up 0.6 per cent at 113.48 yen. The euro dropped 0.2 per cent against the dollar to $1.0555.

The dollar index, which measures the US currency against a basket of six major peers, was last up 0.2 per cent at 101.57.

In a long-awaited speech to Congress, Mr Trump opened the door to a broad overhaul of the US immigration system and vowed to pursue massive tax relief for the middle class, but stopped short of giving details.

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“There was no mention of the size and the schedule of his tax cuts and spending. He just repeated what he had said,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. “So the dollar would have been sold on disappointment. But, in reality, a barrage of comments from the Fed this morning overwhelmed that.”

Rising dollar

Earlier, the dollar had risen after a handful of Fed policymakers boosted expectations for a March interest rate increase.

New York Fed president William Dudley, among the most influential US central bankers, said that the case for tightening monetary policy “has become a lot more compelling”.

John Williams, president of the San Francisco Fed, said a rate increase was very much on the table for serious consideration at the March meeting, given the country’s full employment and accelerating inflation.

Money market futures were now pricing in about a 70 per cent chance of a rate hike in March, compared to about a 30 per cent or less at the start of the week.

"Before Trump's speech, investors were reluctant to fully price in the increased possibilities of a March rate hike. But now that it's over without turbulence, the dollar is extending its rally," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings.

US treasury yields ticked up with a boosted prospect for a March rate hike. Benchmark US 10-year treasury note yields last stood at 2.422 per cent, up from 2.358 per cent on Tuesday.

“The widening interest rate differential between the US and Japan helped the dollar versus the yen,” said Junya Tanase, chief currency strategist at JPMorgan Chase Bank.

Slower expansion

US economic data released on Tuesday showed a moderate growth path as the economy expanded at a slower pace in the fourth quarter, in line with last month’s estimate.

The Mexican peso, seen as the most vulnerable to Mr Trump’s protectionist policies and harsh rhetoric, also took his speech in stride: it was little changed at 20.097 per dollar.

Some analysts said the president’s speech, while lacking details on economic policies, did seem positive after a turbulent month in office. “Today was ‘good Trump’ compared to the aggressive ‘bad Trump’ shown on Twitter,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Currency markets for export-reliant economies largely shrugged off data showing China’s factory activity had expanded at a faster rate than expected in February.

The dollar in Australia, where China is its biggest export market, steadied at $0.7668. Meanwhile, the New Zealand dollar nursed some losses to a stronger dollar. The Kiwi was last down 0.8 per cent at $0.7134.

– (Reuters)