Today we have seen a significant uptick in the probability the the US Federal Reserve hikes interest rates at their next policy meeting on 14-15 March, as hawkish testimony from a crucial voter on the committee keeps the door open for an imminent rate hike. Fed fund futures are now forecasting a 50% chance of a rate hike in just over a fortnight, up from 34% only a week ago. Why?

Overnight, Dallas Fed President and FOMC voting member Robert Kaplan, widely viewed as a centrist rather than a specific hawk or dove, stated that he would like to see rate hikes take place “sooner rather than later” in order for the Fed to stay ahead of the inflation curve. While not stating specifically at what meeting he would like to see the rate hike, his hawkish testimony comes only two weeks after his boss, Fed Chair and noted dove Janet Yellen, seemed to give her most memorable address in favour of raising interest rates in her semi-annual monetary policy report at the US Capitol.

As a result of Kaplan’s support of the tightening camp, markets could place a greater importance on the four Fed speakers this evening – voter and hawk Harker, George, Williams and Bullard – while Friday also flashes up as a crucial day ahead of the self-imposed blackout period before the FOMC’s 14-15 March meeting; Chair Janet Yellen and noted hawk Vice Chair Stanley Fischer give a joint address at 6pm, while voters Evans, a noted Dove, and Powell, the committee’s other centrist member, also speak in the afternoon.

Yet despite all of the chatter about rising interest rates and the crucial Fed events on the horizon, the US Dollar is on the back foot.

Markets appear to be treading water ahead of a President Donald Trump’s key first address to Congress, in which he is expected to announce an increase in defence spending by $54bn, partly financed by cuts in other departments, while potentially shedding light on one of the key pillars of his self-styled phenomenal fiscal stimulus – infrastructure spending. Investors will be looking to see if Trump can live up to his promise of $1 trillion worth of spending on aging US infrastructure, while after all of the chatter surrounding corporate and individual tax cuts in recent weeks, its appears as though this will be left off the agenda until Obamacare is repealed.

But in what is becoming more frequent during this young Trump administration, markets are holding off until the very last minute before seizing upon his promises. The unwavering market optimism seems to be slowly giving way to cautiousness as the president continues to be as unpredictable as ever.

Can he give markets another shot in the arm as the Dow Jones looks to cap its record march to March by breaking 21,000 points? Or might he be guilty of overpromising but underproducing on the goods? We’ll find out tonight.

Henry Croft, Research Analyst, 28 February 2017