US Dollar Finds Support from Economic Releases, Amid Geopolitical Tensions
The greenback began the week by declining against its major rivals, experiencing continuing pressure from previous Friday’s disappointing Non-Farm Payrolls report, which showed a gain of 103,000 in March, versus expectations of an increase of 193,000. The US dollar found support late in the week from Chinese President Xi Jinping’s comments that seemed to ease tensions over a potential trade war as well as release of hawkish minutes from the Fed’s meeting.
The ICE US dollar index finished the week in positive territory, gaining 0.01% against its six major rivals, even as President Donald Trump sent out threats to Moscow about missile strikes on Russian military forces in Syria.
Consumer prices rose 2.4% year-over-year in March, versus 2.2% growth in February, and came in-line with expectations. Producer prices rose 0.3% in March, versus a 0.2% gain in February. Wholesale inventories rose 1% to $625.6 billion in February, compared to a revised 0.9% gain in the previous month. The US government budget deficit widened to $209 billion in March, from a deficit of $176 billion in the year-ago period.
US export prices rose 0.3% in March, versus a 0.2% increase in February. The import price index remained unchanged for March.
Initial jobless claims declined 9,000 to 233,000 in the week ended April 7. The number of job openings declined to 6.052 million in February, from January’s 6.228 million. The NFIB’s Small Business Optimism Index declined to 104.7 in March, from 107.6 in February. The University of Michigan’s consumer sentiment index slipped to 97.8 in April, from 101.4 in March, missing market estimates of a reading of 100.5.
The Euro climbed strongly versus the US dollar in the initial part of the week; but gave up most of its gains to end the week with a 0.4% gain. Eurozone industrial production rose 2.9% year-over-year in February, versus a revised 3.7% gain in January. The region’s trade surplus expanded to €18.9 billion in February, versus €16.1 billion in the year-ago month. Exports rose 3% to €177.5 billion, while imports grew 1.5% to €158.6 billion.
French industrial production grew 1.2% in February, following a 1.8% decline in the prior month. French consumer price inflation came in at 1.6% in March, up from 1.2% in February and versus a preliminary estimate of 1.5%.
German trade surplus contracted to €18.4 billion in February, versus €19.8 billion in the year-ago period. Exports grew 2.4% to €104.7 billion, while imports rose 4.7% to €86.3 billion. The country’s current account surplus declined to €20.7 billion in February, from €23.4 billion. Germany’s consumer price inflation rose to 1.6% in March, versus 1.4% in the prior month.
Spain’s consumer price inflation rose to 1.2% in March, from 1.1% in February. Italy’s retail trade grew 0.4% in February, beating expectations of a 0.3% gain. Italy’s industrial production declined 0.5% for February, versus a 1.8% decline in January.
The British pound rallied strongly against the US dollar, gaining 1.1% on the week. The UK’s trade deficit shrank by £2.0 billion to £0.965 billion for February, versus a revised £2.949 billion gap in January. Imports fell 4.8% to £53.41 billion, while exports were down 1.3% to £52.45 billion. UK construction output declined 3% year-over-year in February, versus a 2.1% decline in January. Manufacturing production grew 2.5% in February, compared to a 2.2% gain in the prior month. Industrial output rose 0.1%, versus a 1.3% rise in January. The UK Halifax House Price Index rose 2.7% year-over-year in the three months to March 2018, beating expectations of 2.1% growth.
The greenback initially fell versus the Japanese yen; but recovered during the later sessions. The US dollar gained 0.4% versus the Japanese currency on the week. Japan’s current account surplus contracted to ¥2.08 trillion for February, compared to ¥2.91 trillion in the year-ago month. Producer prices rose 2.1% in March, versus a revised 2.6% rise in February. Japan’s Consumer Confidence Index remained unchanged at 44.3 in March, missing market expectations of a 44.6 reading. Core machinery orders rose 2.1% in February, versus market estimates of a 2.5% drop.
The Australian dollar slipped during the earlier sessions; but later recovered strongly. On the week, the Australian currency rose 1.4% versus the US dollar. The Westpac Melbourne Institute Consumer Sentiment Index was down 0.6% to 102.4 in April. The NAB business confidence index fell to 7 in March, from a reading of 9 in February.
In the upcoming trading week, we see a number of high impact economic events. Key economic reports from the US include housing starts, NAHB Housing Market Index, retail sales, industrial production, business inventories, Empire State Manufacturing Index and Philadelphia Fed Manufacturing Index.
UK will release reports on retail trade, inflation and unemployment. Economic reports from Europe in the upcoming week include consumer confidence and inflation. Investors will also look forward to Germany’s producer prices and ZEW Economic Sentiment Index; and foreign trade data from Italy and Spain.
Japan will issue reports on industrial production, inflation and trade balance. The Reserve Bank of Australia will issue minutes from its meeting and employment data.
The Euro began the week by rallying versus the US dollar. Despite weak economic releases, the Euro climbed on growing expectations of the QE program being extended for longer. The Eurozone currency lost some of its initial gains to end the week with a mere 0.4% gain versus the greenback. The Euro is likely to be highly volatile in the near term, with growing concerns around the conflict in Syria.
The British pound has been on a bull run, gaining against its major rivals last week and recording a 1.1% gain versus the US dollar. The UK currency may consolidate gains, with geopolitical tensions continuing to exert pressure on the greenback.
The Japanese yen rose sharply versus the US dollar in the initial part of last week and then gave up some of its gains, with the market focusing on easing concerns over a potential trade war between the US and China as well as hawkish US Fed minutes. The Japanese yen should rally in the upcoming week, with investments flowing into the safe-haven currency, given the possibility of airstrikes in Syria.