inancial markets are now placing upwards of an 80% implied probability of a rate increase by the Fed at its next meeting later in two weeks’ time. This follows hawkish comments from senior Fed members Dudley and Williams and a pledge by US President Donald Trump that $1 billion worth of infrastructure spending is on the way. A hike at the Fed’s 15 March meeting now looks like a very strong possibility, providing we get another relatively impressive payrolls report next Friday.

Sterling slumped to its lowest level since mid-January as weaker than expected manufacturing data and political concerns surrounding the Brexit process weighed heavily on the currency. Data released by the Bank of England yesterday also showed that the pace of credit growth in the country slowed for the second month in a row.

March is now gearing up to be a particularly busy and potentially very volatile month in the foreign exchange market. Following the very hawkish comments from a number of senior FOMC members of late there’s now a very good chance we’ll see another interest rate hike by the Federal Reserve. The Dutch election is beginning to emerge as a major event risk with anti-EU Geert Wilders ahead in the polls. Meanwhile, Marine Le Pen continues to unnerve investors by her strong showings in the French Presidential election polls.

Theresa May also remains on course to trigger Article 50 before the month is out, while investors are bracing for the possibility of a Scottish referendum announcement.

Major currencies in detail

GBP

The Pound depreciated 0.6% versus the Dollar on Wednesday following the release of a disappointing manufacturing PMI.

Manufacturing activity slowed more than expected last month according to the latest PMI released from Markit yesterday. The index declined to 54.6 in February from 55.9, albeit remaining comfortably above the level of 50 that denotes expansion. A weak Sterling since the referendum is continuing to foster relatively solid growth in the sector, with yesterday’s index suggesting that manufacturing output could be on course to grow by as much as 1.5% in the first quarter.

Today’s construction PMI is expected to show a modest pick-up in February when released this morning.

EUR

The Euro rose modestly 0.2% against the US Dollar yesterday, having earlier fallen to its weakest position in a week.

Headline inflation in Germany came in higher than expected for February. The monthly measure increased to 2.2% from 1.9%, its fastest pace in four-and-a-half years and comfortably above the European Central Bank’s inflation target. Bundesbank president Jens Weidmann claimed on Wednesday that inflation throughout the Eurozone was likely to be higher than expected this year, although he urged the ECB to maintain its existing accommodative monetary policy measures.

Eurozone inflation data this morning is expected to show price growth accelerated to 2% in the year to February for the first time in four years.

USD

The US Dollar index touched its highest level in seven weeks on Wednesday, although slipped up 0.2% during the London session.

Manufacturing activity picked up pace in the US in February in another clear sign that economic conditions are improving in the country ahead of the Federal Reserve’s next monetary policy meeting later this month. ISM’s manufacturing PMI surged to a three year high 57.7 from 56.0, supported by an increase in new orders which rose at their fastest pace since February 2013.

Personal income data also surprised to the upside on Wednesday. Incomes rose 0.4% in the month to January, although domestic consumption growth still slowed to 0.2% from 0.5%.

Political news continues to be the main driver in US financial markets. Jobless claims will be released this afternoon, although are generally not a major market mover.