The US dollar is firm as the losses suffered in the wake of the FOMC meeting are retraced. Over the last few days, no less than five Federal Reserve officials have come out endorsing a resumption of the normalization cycle. And no fewer than three regional Fed manufacturing surveys have shown greater strength than expected, with gains in forward-looking new orders.  

The two-year US premium over Germany is the middle of this month’s range near 137 bp. The 10-year spread reached new highs for the year yesterday near 174 bp. This represents a 14 bp increase since the FOMC meeting.  

The euro is approaching the 61.8% retracement of the FOMC-inspired gains, which is found near $1.1165. Additional support is seen near $1.1125, but the key may be the $1.1040-60 breakout area. 

Sterling is heavy. After closing poorly yesterday, follow-through selling has pushed sterling to toward $1.4155. While some of the short-term technical readings are getting stretched, we are cognizant that in the week ending March 15, speculators in the futures market bought a record amount of sterling contracts. These late longs are in weak hands, and their culling could extend sterling’s decline. 

The dollar’s recovery in general and Brexit anxiety, in particular, is weighing on the pound. It is not just yesterday’s attack on Brussels, faux pas by one of the leading spokespersons for the remaining in the EU camp, the Chancellor of the Exchequer Osborne.  

Osborne’s economic plan was the centerpiece of the Tory’s campaign less than a year ago. It now lays in ruins. Much sacrifice has been demanded, but the objectives remain elusive, even with some trickery. Even if the other economic assumptions prove accurate, there is a GBP4.4 bln budget gap that will not be addressed in the Autumn Statement. The question many are asking now is whether Osborne will deliver it.