Another day, another selloff in the US Dollar

Feb 04, 1:45 pm
US Dollar_

Today’s Economic events

  • Australia NAB quarterly business confidence 4 vs. 1 previously
  • ECB President Draghi speech
  • UK Halifax HPI m/m 1.70% vs. 0.20%
  • Eurozone retail PMI 48.9 vs. 49.0 previously
  • EU releases economic forecasts
  • BoE votes to keep rates at 0.50%
  • BoE releases economic forecasts
  • US Challenger job cuts y/y 41.60% vs. -27.60%
  • US Weekly unemployment claims 285k vs. 279k
  • US Prelim nonfarm productivity q/q -3.0% vs. -1.50%
  • US Prelim unit labor costs q/q 4.50% vs. 3.90%

Coming up

  • The US Factory orders

The US Dollar declined sharply yesterday, taking along with it the equity markets. However, most of the peers managed to make strong grounds with the US Dollar coming in as the weakest currency before US equity markets managed to stabilize on higher Oil prices. The markets followed through today with Asia seeing the Nikkei225 down -0.85% while the Shanghai Composite managed to close with 1.55% gains. The USDJPY is back to testing yesterday lows near 117 after a failed rally earlier in the day which saw prices fizzle out near session highs of 118.175. BoJ officials commented that the Central Bank had ample room to cut rates to as low as -2.0%, but the markets took little heed.

The Aussie, which posted strong gains yesterday, continued its uptrend after dipping to 0.7165. AUDUSD is up 0.93% for the day, while the NZDUSD, the top performing currency yesterday has gained 1.11%, rallying to a 3-week high at 0.673.

In Europe, the markets opened on a similar note with EURUSD continuing to surge higher. At the time of writing, the single currency is up 0.99% for the day after testing $1.12. The EU’s economic forecasts released today saw downward revisions to growth and inflation but that didn’t deter the Euro to surge against a weak Greenback.

The Bank of England, at its monetary policy meeting today, left interest rates unchanged at 0.50% while keeping asset purchased at the current GBP375billion. The surprise was, however, the MPC vote count which was unanimous after nearly 5 months of dissent from MPC member, Ian McCafferty. The Central bank also released its growth forecasts where it expects GDP to grow at 2.20% down from 2.50% previously, while expecting to grow at 2.40% in 2017, down from 2.70% as previously estimated. On inflation rates, the BoE expects inflation to reach 2.05% in two years time and thereafter rising to 2.25%.

The markets are currently pricing in a rate hike to 0.70% in Q3 of 2017. The British Pound which posted strong gains in the last two days was weaker on the BoE’s monetary policy statement and economic forecasts. GBPUSD, which touched a one-month high at 1.464 earlier today, fell briefly to post a session low at 1.4534 before reversing back higher currently with gains of 0.35% for the day.

During the release of the inflation report, BoE’s Carney commented:

  • MPC Watchful for signs of low inflation impacting wages
  • MPC judges that inflation expectations are well anchored
  • MPC expects domestic growth to rise
  • UK CPI is expected to remain low in 2016
  • Real incomes expected to rise going forward
  • Downside risks to UK trade, finance, and confidence
  • Global growth remains sluggish
  • The next policy move would be a ‘rate hike’ and not a ‘rate cut
  • MPC ready to act to get CPI to the 2.0% target sustainably

The European equity markets are mixed today with the German DAX down -0.68% while the London FTSE100 is up 0.37%.

The NY session opened with the labor market data. Weekly jobless claims rose more than expected to 280k while US productivity fell -3.0%, posting the fourth quarter of declines. The only silver lining was the unit labor costs which increased to 4.50%, above estimates of 3.90%. The US Dollar remains muted to the data and biased to the downside.

On the commodity front, Gold prices are obviously higher touching highs of $1150 an ounce, while WTI Crude Oil prices are soft, down -1.50% after rising above $32.75 a barrel. The remainder of the evening is marked with US factory orders.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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