American FX Outlook: China's Call For Free Trade Unleashes The Risk Appetite

What you need to know before markets open

• The risk appetite is back on after Chinese President Xi Jinping opted for more free trade friendly tone in his policy speech boosting stock as safe haven assets retreated.
• French and Italian figures for industrial production disappointed.
• The Russian ruble remains under severe selling pressure after the US introduced new sanctions on Russian companies with ruble falling almost 10 percent since the beginning of this week to the lowest level since December 2016.
• The Bank of England rose the hawkish tone with MPC member Ian McCafferty saying the Bank should not delay rate increases due to expected wage growth increase.
• Dallas Federal Reserve President Kaplan confirmed the view of Fed moving up with rates gradually as inflation is seen raising while the unemployment rate is expected to fall.
• The US PPI figures due later on Tuesday are likely to be overshadowed by Wednesday’s US CPI reading and the trade wars related headlines.

Tuesday’s market moving events

• The US NFIB small business optimism is seen decelerating to 107.0 in March.
• The US PPI excluding food and energy is expected to accelerate to 2.6 percent in March
• Canada’s housing starts are expected to reach 219K in March in February.

Major market movers

• The US Dollar was mostly boosted with the risk appetite returning to the FX market after China’s President Jinping’s speech favoring positive effects of free trade.
• The GBP/USD has been boosted by the hawkish comments from the MPC member Ian McCafferty that favors the imminent rate hike.
• The US PPI figures are likely to be overshadowed by tomorrow’s US CPI reading and the trade wars related headlines.

Earlier in Asia/Europe

• British Retail Consortium’s index rose 2.3 percent y/y in March up from 1.6 percent y/y in February.
• French industrial production rose 1.2 percent m/m in February while manufacturing output decreased -0.6 percent m/m.
• The Bank of England Monetary Policy Committee member Ian McCafferty said the BoE shouldn't delay raising interest rates again, due to a possibility of faster pay rises.
• ECB Governing Council member Ewald Nowotny said the Bank is at an important turning point in monetary policy as it must normalize policy not too soon but not too late. Nowotny said the ECB sees strong but unequal growth and subdued inflation with the huge scale of monetary stimulus making the tightening of monetary policy is even more complex.
• Italian industrial production fell -0.5 percent m/m in February still rising 2.5 percent y/y.
• Dallas Federal Reserve President Robert Kaplan said the unemployment rate in the US will go lower and inflation will move toward the target in 2018 so the Fed has to be gradual and patient in raising federal funds rate in light of headwinds.
• The Bank of England chief economist Andy Haldane  said the monetary policy loosening since 2007 has had a significantly positive effect on jobs, income and wealth with gains having a different extent across the income, age and regional distribution that is making a strong case for the periodic, comprehensive and transparent assessments of distributional impact of monetary policy.