Greenback Heads South Following Mixed Economic Data
The US dollar pulled back slightly and then fell sharply against most major currencies last week, following the release of mixed economic reports. The country’s industrial production and retail sales came in much lower than expected. The unexpected spike in wage growth to a nine-year high and a higher-than-anticipated inflation rate raised speculations of the Federal Reserve announcing multiple interest rate hikes this year.
US retail sales slipped 0.3% for January, versus expectations of a 0.2% gain. The decline in retail sales market the biggest decline in almost a year.
US industrial production surprisingly declined in January. The country’s industrial output slipped 0.1% last month, after a 0.4% gain in December; and came in much worse than expectations of a 0.2% rise. Manufacturing production remained flat in January, versus expectations of 0.3% growth.
US CPI data climbed 0.5% in January, with a rise in the cost of clothes, rent, healthcare and gasoline. The annual consumer price index remained unchanged at 2.1%.
US housing starts rebounded in January, following a strong drop in December due to poor weather. Housing starts reached the second-highest level since the 2008 recession, climbing ~10% to an annual rate of 1.33 million in January.
EUR/USD had a mixed week, trading within the 300 pips range. The EUR/USD rose past the 1.25 level due to weakness in the greenback. However, the pair slipped on Friday, settled at 1.2409 and ultimately ended the week higher. The high volatility in the pair is likely to continue next week.
The Eurozone’s trade surplus narrowed to €25.4 billion in December, missing market expectations of €30.2 billion. While imports rose more than expected, the increase in exports was softer.
The German wholesale price inflation climbed to 2% year-over-year last month, versus 1.8% in the prior month. Italy’s trade surplus narrowed to €5.25 billion in December; but was better than expectations €4.44 billion. Spain’s consumer price inflation came in at 0.6% year-on-year in January. Although this was marginally higher than expectations, it marked the lowest inflation rate since September 2016. France recorded a decline in its unemployment rate to 8.9% for the three months to December, representing the lowest jobless rate since the first quarter of 2009.
The GBP/USD pair had a volatile week and settled slightly above the support level at 1.4033. Weakness in the US dollar helped the Pound gain back over the 1.40 region. The UK also released mixed economic data, with weak retail sales and upbeat inflation data. The UK reported a 0.1% rise in retail sales in January, missing expectations for 0.5% growth. Retail sales climbed 1.6% year-over-year. Consumer price inflation remained unchanged at 3% for January.
Japan reported a narrowing of its trade gap, to ¥943 billion in January from ¥1092 billion a year earlier, with a higher-than-expected rise in exports and slower growth in imports. The US dollar reached a three-year low versus the Japanese Yen last week, despite a recovery in the global stock market. USD/JPY closed above the 106 level on Friday. The Yen has been on a strong upward path, in response to the stock market tumble, as the Japanese currency is considered a safe-haven by investors. The Yen surged around 2.3% on the week against the US dollar.
The USD/CAD had a mixed week and ended the week at around the same price at which it started. The pair closed at around 1.2558 at the end of the week. Looking ahead, Canada’s retail sales and inflation reports would determine the fate of this pair.
In the upcoming trading week, we see a number of high impact economic releases, with the US FOMC meeting minutes headlining, against anticipations of clues on the timing of the next interest rate hike. The ECB and RBA will also be publishing the minutes of their last monetary policy meetings.
The UK will report its GDP growth, unemployment rate and inflation rate. The speech by the Bank of England Governor Mark Carney will also grab investor attention. Japan’s manufacturing PMI and Consumer Price Index will be released in the week. Eurozone’s economic releases in the upcoming week include its consumer confidence report, manufacturing and services PMI, and Consumer Price Index. We also have a number of other key releases from the US, including existing home sales and initial jobless claims figures.
The EUR/USD pushed to new highs last week and the uptrend is likely to continue this week. This would be supported as much by Euro bullishness as by US Dollar weakness. The pair could reach the 1.2650 level, with a major resistance being witnessed at 1.2451.