It appears that investors are growing more convinced that the U.S. Federal Reserve (Fed) will raise its key rate when it next meets in mid-March. The implied probability on bond markets has shot up 10%, rising from 40% last Friday to 50% at the end of the day yesterday. Comments from several Fed officials in recent days to the effect that inflation and job market objectives have largely been met are certainly in large part responsible for the trend. The U.S. dollar took advantage of this favourable environment to regain lost ground against its peers, including the Canadian dollar.
This evening, we will be carefully listening to President Trump’s speech to Congress. After yesterday’s announcement of a USD 54 billion increase to the defence budget, it will be interesting to see how he intends to follow up on his electoral promises, particularly in terms of his fiscal and infrastructure plans. In the meantime, we’ll also be keeping an eye on the second release of U.S. Q4 GDP data. Better domestic demand than the advance estimate from the Bureau of Economic Analysis could force the reading to be upgraded and by extension support the greenback.
