US Dollar sees markets holding their breath on German defense vote and Trump-Putin call

NEW YORK (March 18) The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades flat at 103.60 at the time of writing on Tuesday, off from a near a five-month low at levels not seen since October. The move comes after several news headlines,  increasing geopolitical uncertainty and key events taking place during the day. Any headline could be a catalyst to push the DXY to an even six-month low and below the 103.00 level. 

On the geopolitical front, a high-stakes meeting between the United States (US) President Donald Trump and Russian President Vladimir Putin is scheduled this Tuesday, with the two parties set to discuss territory and divide up certain assets. This has raised concerns that Ukraine will be torn up and the European Union (EU) and North Atlantic Treaty Organisation (NATO) will be bolstered to boost even more their defense spending. 

Meanwhile, Israel has broken this morning the ceasefire truce with Gaza that started in January by attacking Hamas’ tactical installations and buildings The military move comes after Israel and the US claimed Hamas did not hold its end of the bargain by releasing hostages. This will, in turn, possibly bring more attacks in the Red Sea by Houthi rebels and retaliation from Hamas. 

The third big development is in German politics, with a vote on a €45 billion spending package for defense, which would spill over into the whole European industry. If an agreement and backing can be reached with the German Greens Party, a two-thirds majority would be present to get the plan through the Bundestag. Votes are expected to take place at 12:30 GMT. 

On the economic data front, some US housing data is due, though the geopolitical headlines will remain the main drivers for this Tuesday. 

Daily digest market movers: Silence before the strom

• Several data points have already been released:
  • Monthly Building Permits came in at 1.456 million, beating the estimate of 1.45 million in February, below the 1.473 million in January.
  • Housing Starts for February came in at 1.501 million units, a beat on the expected 1.38 million and up compared to 1.366 million in January. 
  • The monthly Export Price Index rose by 0.1%, beating the expected contraction by 0.2% in February, coming from a positive 1.3% in January. The Import Price Index jumped by 0.4%, beating the expected contraction by 0.1% and compared to the January positive 0.3%.
• At 13:15 GMT, Industrial Production for February came out. The actual number came in at 0.7%, beating the 0.2% consensus and above the 0.5% in January. 
• Equities are mixed again on Tuesday, with European indices up nearly 1% on chances the German spending budget passes, while US equities are diving near 1% lower in clearly divided trading day. 
• The CME Fedwatch Tool sees a 99.0% chance for no interest rate changes in the upcoming Fed meeting on Wednesday. The probability of a rate cut at the May meeting currently stands at 21.5%.
• The US 10-year yield trades around 4.31%, off its near five-month low of 4.10% printed on March 4.

FXStreet