The U.S. dollar was seen making a comeback in the month of February as the once deemed to be weak currency was seen making signs of a temporary bottom. The sentiment in the U.S. dollar was lifted by a mix of broad fiscal and monetary policy signals.

Although no major changes were seen in the month of February, the potential talks of President Trump’s infrastructure spending alongside a hawkish Fed speak led to the USD’s reversal.

The Japanese yen, of course emerged as the top performing currency in the month of February. The yen managed to rise 2.25% on the month. The weakest currency was of course the Canadian dollar which fell over 4.19%. The weakness in the Canadian dollar came about as economic data remained mixed, with the exception of inflation which showed signs of resurgence.

Following the rather mixed spell, expectations of aggressive rate hikes from the Bank of Canada also fell. Investors were also aware about the ongoing uncertainty surrounding the U.S. administration’s approach to the NAFTA deal.

Feb 2017 – FX Market Performance

Data from the Eurozone was limited which saw the common currency mostly consolidating and eventually led to a decline as the U.S. dollar strengthened. The market speculation of hawkish ECB forward guidance were also quashed as the minutes of the meeting from January showed that officials were hesitant to change the language in the ECB’s statement.

There were also some minor headwinds for the common currency as Germany was still undecided on forming a majority government. While coalition talks finally led to the famed alliance between Merkel’s CDU/CSU and the SPD party, the market reaction was muted. The Italian elections that were held in early days of March also weighed in on the markets keeping the sentiment in check in the euro currency.

The March 2018 Monthly Outlook

The month ahead will see some major central bank meetings lined up, mostly during the first part of the month. Broadly, no changes are expected from most of the central banks. However, the FOMC meeting, due later in March will no doubt stand out as investors start to price in another rate hike from the Fed.