US Dollar Index Rises for Third Week in a Row
Despite mixed reports, the US dollar rose against most major currencies during the week, with the ICE U.S. Dollar Index gaining 0.2% and the WSJ U.S. Dollar Index rising 0.1% on the week. The greenback recorded significant gains against the yen. It initially fell against the euro, but subsequently gained positive momentum. On the week, the euro was down 0.1% against the dollar.
New orders for US manufactured goods fell 1.4% in January, following five consecutive months of gains, and missed market estimates. The ISM non-manufacturing index declined to 59.5 in February, from 59.9 in January.
US trade deficit widened to $56.6 billion in January, marking the highest shortfall since October 2008, and coming in higher than market estimates. Exports of goods and services declined 1.3%, while imports remained unchanged. Unit labor costs rose at an annualized 2.5% in the fourth quarter, while labor productivity remained unchanged. Wholesale inventories climbed 0.8% to $619.1 billion in January.
Non farm payrolls rose by 313,000 in February, versus a revised 239,000 in January, and topping market estimates of 200,000. The unemployment rate was unchanged at 4.1%. Private sector employers in the US added 235,000 jobs in February, versus a revised 244,000 in January. Initial jobless claims rose to 231,000 in the week ended March 3, versus 210,000 in the prior week.
The Eurozone’s retail sales slipped 0.1% month-over-month in January, missing expectations of a 0.3% gain. The IHS Markit Eurozone Services PMI fell to a reading of 56.2 in February, down from the preliminary estimate of 56.7 and versus January’s final reading of 58. The IHS Markit Eurozone Composite PMI slipped to 57.1 in February, from the preliminary reading of 57.5 and below the previous month’s reading of 58.8. The economy expanded 0.6% in the December quarter, versus a 0.7% gain in the prior period. The European Central Bank (ECB) kept its benchmark refinancing rate unchanged at 0% as expected.
Spain’s consumer confidence fell to 99.7 in February, versus 102.3 in January. Industrial production gained 1.2% year-over-year in January, down from a revised 5.8% gain in December. The German Composite PMI came in at 57.6 in February, below January’s reading of 59, but exceeding the preliminary estimate of 57.4. Services PMI slipped to 55.3 in February, from 57.3 in January. The trade surplus expanded to €17.4 billion in January from €14.6 billion in the year-ago period. The IHS Markit France Services PMI fell to 57.4 in February, from January’s reading of 59.2. The Composite PMI slipped to 57.3 in February, versus a preliminary reading of 57.8. French trade deficit widened to €5.56 billion in January, from €3.40 billion in December. Industrial production slipped 2% in January.
The British pound gained against the US dollar during the trading week, rising 0.3% for the week. UK’s industrial production rose 1.3% in January, versus a 1.3% decline in December. Exports of goods and services gained 1.6% to £53.65 billion in January. The UK Halifax House Price Index rose 1.8% year-over-year in the three months to February.
The Reserve Bank of Australia kept its interest rate unchanged at 1.5%. The Australian economy expanded 0.4% in the three months to December, versus 0.7% growth in the prior quarter.
The greenback rallied against the Canadian dollar during the earlier part of the week; but gave up gains after reaching the 1.30 level. The Canadian dollar benefited from news of the country being exempt from the new tariffs announced by President Trump. Canada’s unemployment rate fell to 5.8% in February, from 5.9% in January. The Bank of Canada kept its overnight rate unchanged at 1.25%. Canada’s trade deficit shrank to C$1.9 billion in January, from C$3.1 billion in December.
The US dollar gained versus the Japanese Yen during the week, following news of President Trump accepting an invitation from North Korea’s leader Kim Jong-un for negotiations over its nuclear program. The Japanese central bank maintained its dovish policy stance and left interest rates unchanged. The Japanese economy expanded 0.4% in the three months to December, higher than the preliminary forecast of 0.1% growth.
In the upcoming trading week, we see a number of high impact economic releases, including retail trade, inflation rate, housing data and industrial production. The US will also release data on consumer sentiment, housing starts, business inventories, producer prices, Housing Market Index and Philadelphia Fed Manufacturing Index.
In Europe, the UK government will issue its Spring Statement during the week. Investors will look forward to inflation data from the Eurozone, France, Germany, Spain and Italy. The Eurozone’s reports on employment change, industrial production and trade balance will be also released during the week. The Bank of Japan will release minutes from its latest meeting. Economic reports from Japan in the upcoming week include producer prices, industrial production, machinery orders and Tertiary Industry index. Australia will release the NAB business confidence and Westpac consumer confidence reports during the week.
The Canadian currency gained 0.5% against the greenback last week. Although the pair made attempts to breach the 1.30 mark, it settled below this level, despite soft data from the US. This indicated weak bullish momentum for the pair last week, which could continue this week or even turn bearish.