European equity markets opened higher on Wednesday as fears of a wider security threat following the Brussels attacks yesterday receded. Helping market sentiment were improved business survey readings for the Eurozone and Germany, which got overshadowed yesterday from the terror attacks. The data included the flash Eurozone PMI numbers for March, which showed the first quarter looks set to end on a more positive note after the dismal start to the year.
The dominant theme on Wednesday was the strength of the US dollar which has been buoyed this week from unexpectedly hawkish voices coming out of the Fed. The week has seen several Fed officials speak for the first time since the FOMC meeting last Wednesday and a consensus appears to be forming for a possible April or June rate hike.
Adding to the hawkish sentiment was St. Louis President James Bullard who was speaking to Bloomberg TV earlier today. Bullard said the Fed runs the risk of overshooting its inflation target, which might force it to raise rates more rapidly later on.
The fresh talk of interest rate hikes pushed the dollar to a one-week high against the yen. The greenback moved closer to the 113 yen level, which it hasn’t breached since the March 16 FOMC meeting. The euro also lost ground against the dollar, dropping below 1.12 dollars at the start of European trading and extending its decline to 1.1179 dollars in late session.
The pound meanwhile remained under pressure against both the dollar and euro as yesterday’s explosions in Brussels prompted fears that the UK public would be more likely to vote to leave the EU due to heightened migration concerns. Sterling slipped to 1.4116 dollars in late European trading, while the euro rose to a near one-month high of 0.7926 pounds.
The bullish US currency also weighed on the Australian and New Zealand dollars, which continued to slide on profit taking. The aussie was down at 0.7548 versus the US dollar, while the kiwi recovered just above 0.67 after briefly dropping below the level.
The Canadian dollar saw a sharper drop though as oil prices accelerated their decline following a much bigger-than-expected increase in US crude inventories, which pushed US oil futures below $41 a barrel. The greenback jumped 1% to a one-week high of 1.3215 versus the loonie.
Gold was another victim of rising expectations of a Fed rate hike as it tumbled over 2% to $1218 an ounce in late European trading.
The only data to come out of the US on Wednesday were new home sales figures, which rose by a smaller-than-expected 2% month-on-month in February.
Looking ahead to tomorrow’s Asian session, trade figures out of New Zealand will be the main data to watch.
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