Financial market research and analysis

US equity markets continued their Powell inspired sell off overnight, as risk aversion dominated and investor concerns over a faster pace of tightening at the Fed continued to weigh on Wall Street. The Dow ended the session 380 points lower, whilst the S&P closed 1.1% lower and the Nasdaq shed 0.8%. This draws a line under February and simultaneously brings to an end the S&P’s 10 month winning streak. The index booked its first losing month in 11, amid intense concerns over rising interest rate expectations causing investors to sell out of stocks.

After another steep selloff on Wall Street, indices were under pressure in Asia and the domino effect means a negative start to trading is forecast for Europe this morning.

Dollar retains buying interest

In the forex markets, the dollar was king, as investors continued to digest Fed Powell’s optimistic and hawkish tone in his appearance before the Congress financial services committee. Not even fourth quarter US economic growth being revised down to 2.5% was going to rain on the dollar’s parade.

Thursday promises to be a big day for the dollar thanks to a full US economic calendar, with highlights such as PCE, initial jobless claims and ISM Manufacturing figures all expected to impact on the market. Given the markets hyper-sensitivity to interest rate expectations, particularly in light of Powell’s optimism over the strength of the US economy, even the slightest surprise to the upside on a reading, could put fresh legs on the dollar rally. Given that in the previous session the dollar charged higher on a downward revision of Q4 GDP, a decline in personal consumption and a huge miss in pending homes sales, strong readings today could potentially see a strong reaction.

The dollar index rose through the previous session and is seen encountering resistance at 90.67 overnight. A meaningful break through this level could see the dollar index target 90.88, a move above here would be a very positive development for the dollar bulls. On the downside, a strong support can be seen at 88.50.

GBP/USD sheds over 1% on Brexit fears

Whilst European bourses are heading for a negative start, the FTSE could find its losses capped by a considerably weaker pound. GBP/USD plummeted over 1.1% in the previous session to a 6-week low of $1.3750, as the seemingly unresolvable Irish border issue continues to hamper Brexit talk progress.

The clock is ticking, with just three weeks to go until the transition period should be agreed between the EU and Britain, yet the two sides are still at opposite ends of the playing field. The differences between the sides became more evident on Wednesday, following Theresa May’s flat out rejection of the EU’S proposed ruling over Northern Ireland in the draft Article 50 treaty, to prevent a hard border there.

Sterling traders will now look anxiously towards Theresa May’s speech on Friday where she will lay out her vision of the post Brexit relationship. Concerns are increasing that she is looking to adopt a harder line on Brexit, which would be bad news for the already struggling pound.

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