The US dollar extended its gains for a third day on Tuesday following hawkish comments by several Fed officials in recent days. Speaking on Monday, Atlanta Fed President Dennis Lockhart said the US economy had sufficient momentum to justify a rate rise as early as April. Earlier in the day, San Francisco Fed President John Williams expressed similar views saying there was little risk of a US recession and that a rate hike is possible in both the April and June meetings.
The greenback climbed to 112.20 yen at the start of Asian trading and the weaker yen boosted shares in Tokyo with the Nikkei 225 closing up 1.9%. Weak manufacturing PMI numbers also weighed on the yen earlier in Asian session. Manufacturing PMI in Japan fell to 49.1 in March from 50.1 in the previous month – the first time since April 2015 that the reading was below 50. More worryingly, export orders declined for the fifth month in a row, worsening significantly to 45.9 from 49.0 in February.
However, the Japanese currency reversed sharply in late session after a suspected terrorist explosion at a Brussels Airport heightened risk-off sentiment. The dollar fell to 111.40 yen, and the euro and the pound both also fell sharply, dropping to 124.72 and 158.93 yen respectively.
Political uncertainty continued to cast a cloud over the pound as investors weigh the damage to David Cameron’s leadership and the ‘stay’ campaign following growing tensions within the ruling conservative party. The pound was back below the 1.43 level to trade around 1.4258 dollars. Sterling also lost ground against the euro, which climbed to 0.7848 pounds.
The single currency meanwhile headed lower for a second day against the dollar to decline to 1.1189 dollars.
The Australian dollar received a boost from upbeat comments on Australia’s economy by RBA Governor Glenn Stevens. Speaking in Sydney, Stevens made no reference on the immediate outlook for interest rates, but with regards to the aussie’s recent appreciation, he was quoted as saying “the currency is getting a bit ahead of itself”. The aussie rallied to 0.7620 before reversing in late session to fall to 0.7553 versus the US dollar.
In commodities, US oil futures were slightly down on Monday to trade at $41.32 a barrel, but gold spiked up following the airport explosions in Brussels. Gold prices surged 1% to $1260 an ounce on the news of the explosions, which increased demand for safe havens.
Coming up later today, a number of survey data will be eyed including the flash Eurozone PMI readings for March, and the latest German Ifo and ZEW business surveys. Inflation data out of the UK will also be eyed.
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