Greenback Rally Eased Ahead of Easter Weekend
Sentiment in the currency market recovered last week, following several days of panic related to a potential trade war between the US and China, which could impact global trade. The week began with the US dollar slipping steeply against its major rivals. The greenback staged a rally as the week progressed but ran out of steam towards the end of the week, amid subdued trading ahead of the Easter weekend.
The US reported GDP growth of 2.9% for the final three months of 2017, up from 2.5% in the second estimate. The Pending Home Sales Index declined 4.1% year-over-year in February, versus a 4% decline in January. Wholesale inventories rose 1.1% to $626.7 billion in February, comparing favourably with the 1.0% gain recorded in January.
US consumer spending rose 0.2% in February, in-line with estimates. The University of Michigan’s Consumer Sentiment Index slipped to 101.4 in March, versus an initial reading of 102. However, this was above February’s reading of 99.7 and the highest recorded since January 2004. The Chicago Purchasing Managers Index slipped to 57.4 for March, from 61.9 in February.
The Chicago Fed National Activity Index rose to 0.88 in February, versus a revised reading of 0.02 in the prior month, beating market expectations of 0.15. The Dallas Fed Manufacturing Index declined sharply to 21.4 for March, from 37.2 in February. The S&P CoreLogic Case-Shiller Composite Home Price Index rose 6.4% year-over-year in January, versus a 6.3% rise in December. The Richmond Fed Manufacturing Index slipped to 15 in March, from 28 in February.
The EUR/USD pair rose initially only to decline sharply as optimism returned and the greenback delivered a strong run.
Eurozone’s Consumer Confidence Index remained unchanged at 0.1 in March, while the region’s Economic Sentiment Index declined to 112.6, from a revised 114.2 in February.
The GBP/USD pair fell sharply on the week on a greenback comeback, with economic releases from the UK offering little surprise.
The UK’s current account deficit shrank to £18.4 billion in the fourth quarter, from a revised £19.2 billion deficit reported for the third quarter. The UK economy expanded 0.4% in the three months to December 2017, versus 0.5% growth in the prior period. The GfK Consumer Confidence Index improved 3 points to -7 in March.
Spain’s consumer price inflation accelerated to 1.2% year-over-year in March, from 1.1% in February. Spanish industrial new orders grew 6.9% year-over-year in January, down from 8.4% growth in December. Spain’s business confidence index slipped to 2.9 in March, from 3.9 in February. Retail trade rose 1.9% year-over-year in February, following a 2.2% gain in January.
The French economy expanded by 0.7% in the three months to December, an improvement over the 0.5% growth reported in the prior quarter. The French consumer confidence index remained unchanged at 100 in March. Producer prices rose 0.1% in February, while consumer prices were up 1.5%, in-line with market expectations.
Italy’s consumer confidence index rose to 117.5 in March, from 115.7 in February. Industrial new orders plummeted 4.5% in January, after recording 4.6% growth in December. Italy’s producer price inflation was unchanged at 1.6% in February, while consumer price inflation rose 0.9% in March, from 0.5% in February.
Japanese retail sales increased 1.6% year-over-year in February. Although this marked an improvement over the 1.5% gain recorded in the previous month, it was below market expectations which called for 1.7% growth. Industrial output rose 4.1% in February, versus a 6.8% drop in January.
The Canadian economy contracted 0.1% in January, after staging 0.2% growth in December, and missed estimates of 0.1% growth. The Canadian government reported a budget surplus of C$0.17 billion for January, versus a C$1.24 billion surplus in the year-ago period. Canada’s Product Price Index rose 1.9% year-over-year in February, following a revised 2.1% rise in the prior month.
For this trading week, we see a number of high impact economic events, with the jobs report for March headlining on Friday. Key economic reports from the US include ADP national employment report, construction spending, factory orders, international trade, jobless claims, manufacturing Purchasing Managers’ Index (PMI), services PMI, ISM manufacturing and non-manufacturing index.
The UK will release reports on labour productivity, manufacturing, construction and services PMI. Economic reports from Europe in the upcoming week include retail sales, unemployment rate, producer prices and consumer price inflation. Investors will also look forward to Germany’s industrial orders, retail sales, IHS Markit manufacturing and composite PMI; as well as current account data, retail sales and Markit composite PMI from France. Italy will release reports on unemployment and Markit manufacturing PMI, while Spain will issue consumer confidence and unemployment change data.
Japan will report household spending, leading economic index, Nikkei services PMI and manufacturing PMI. Traders will also look forward to the Reserve Bank of Australia’s interest rate decision.