USD/EM currencies likely to trade with a weakening bias in the run-up to March FOMC meeting, says Scotiabank

USD/EM Asian currencies are anticipated to trade with a weakening bias in the run-up to March Federal Open Market Committee (FOMC) meeting. Meanwhile, upside room for the greenback is modest only prior to March FOMC meeting as the odds of a March rate increase has been 80 percent already.

The Federal Reserve is expected to continue assuming a more hawkish stance in the coming sessions, with Janet Yellen and Stanley Fischer scheduled to speak at 2:00AM and 1:30AM HKT respectively on Saturday, Scotiabank reported.

In addition, the Trump administration will submit budget blueprint on March 13. The G-20 finance ministers and central bank governors will meet in Germany’s Baden-Baden on March 17-18. The Group of Twenty is likely to re-pledge to refrain from competitive devaluations.

Further, global investors reduced their long-dollar positions further in February but at a slowing pace according to the latest CFTC data. The so-called 'Trump trade' positions established post United States President Donald Trump’s election victory should have been unwound as at end-January

Unless the Fed turns extremely hawkish or the US President Trump-led administration unveils a mega stimulus plan on March 13, the dollar is anticipated to pare its gains post the Fed’s March meeting no matter whether the Fed delivers a rate hike or not.

"When the market stabilizes after the Fed’s March gathering, looming uncertainty arising from the French Presidential Election will likely undermine the EUR and support the dollar from time to time. Last but not least, we bear in mind that an excessively strong dollar is not in the Trump team’s interest and expect DXY Index to trade in a range of 99-103 for now," the report commented.