US Dollar Rises Against All Major Currencies on Economic Data, Easing Tensions
The US dollar climbed to its highest level since February following strong economic data from the US and weak economic reports elsewhere. The ICE US Dollar Index rose 1.3% during the week, its biggest gain since early February. The strength in the greenback was fuelled by rising US Treasury yields and expectations of further rate hikes by the Federal Reserve later in the year. Easing of geopolitical tensions also helped the US dollar. The currency would have risen further, if not for end of week profit taking.
The US economy expanded at an annualized rate of 2.3% in the first quarter, down from 2.9% in the prior quarter. Sales of existing houses rose 1.1% to an annual rate of 5.6 million for March, from 5.54 million in February. Sales of new houses were up 4% to an annual rate of 694,000 in March, beating market estimates of 625,000. The IHS Markit composite PMI improved to 54.8 in April, from 54.2 in March, albeit missing expectations of a 55.3 reading. The IHS Markit manufacturing PMI climbed to 56.5 in April, from 55.6 in March. The IHS Markit services PMI came in at 54.4 in April, versus 54 in March.
US durable goods orders grew 2.6% in March, versus a revised 3.5% growth in February. Initial jobless claims fell by 24,000 to 209,000 for the week ended April 21, from 233,000 in the prior week. Wholesale inventories rose 0.5% to $628.8 billion in March, versus a 1% increase in February. The S&P CoreLogic Case-Shiller home price index improved to 6.8% year-over-year for February, versus a 6.4% rise in January. The University of Michigan’s consumer sentiment index rose to 98.8 for April, versus a preliminary estimate of 97.8, and compared to 101.4 in March. The employment cost index came in at 0.8% for the first quarter, up from a 0.6% gain in the prior quarter.
The European Central Bank (ECB) kept its benchmark refinancing rate unchanged at 0% as expected. The IHS Markit Composite PMI for the Eurozone remained unchanged at 55.2 for April. The IHS Markit manufacturing PMI slipped to 56 in April, from 56.6 in March. The consumer confidence index for the region rose to 0.4 in April, from 0.1 in March. The Eurozone’s economic sentiment index held at 112.7 in April.
Germany’s unemployment rate fell to 3.4% in March, from 3.5% in February. The import price index slipped 0.1% year-over-year in March, after a 0.6% decline in February. The IHS Markit Composite PMI rose to 55.3 in April, beating market expectations of a 54.8 reading.
The Spanish economy expanded 0.7% in the first quarter of 2018, in-line with expectations. Retail sales grew 1.9% year-over-year in March. Consumer prices rose 1.1% year-over-year in April, compared to 1.2% in March. Spain’s unemployment rate rose to 16.74% in the first quarter, from 16.55% in the prior period. Producer prices rose 1.3% year-over-year in March, versus 1.2% in February. The Spanish business confidence index surged to 5.5 for April, from 2.9 in March.
Italy’s consumer confidence index dipped to 117.1 for April, from 117.5 in March, although it beat market expectations of 116.9. The manufacturing confidence index moved south to 107.7 for April, from a revised reading of 108.9 for March. Italy’s producer prices rose 2% year-over-year in March.
The French economy grew 0.3% in the first quarter, following 0.7% growth in the prior quarter. French inflation rose 1.6% year-over-year in April. The consumer confidence index improved to 101 for April, from 100 in March. The IHS Markit composite PMI rose to 56.9 for April, from 56.3 in March.
The British pound declined to its lowest level since early March following downbeat growth data. The sterling fell 1.5% on the week versus the greenback. The UK economy grew 1.2% year-over-year in the first quarter, missing expectations of 1.4% growth.
The Japanese yen also declined versus the US dollar. The greenback climbed 1.3% versus the Japanese currency last week. Japan’s industrial production rose 1.2% in March, versus a revised 2.2% gain in February. Retail sales grew 1.0% year-over-year in March, versus a revised 1.7% growth in February. The unemployment rate remained unchanged at 2.5% in March. Housing starts were down 8.3% year-over-year in March, following a 2.6% decline in February. The Nikkei manufacturing PMI climbed to 53.3 in April, versus a final reading of 53.1 in March and missing market expectations of 53.4.
Australia’s headline consumer price index rose 0.4% in the March quarter, missing market expectations of 0.5%. Import prices were up 2.1% in the March quarter, versus a 2% increase in the prior quarter. Export prices rose 4.9% in the quarter, following a 2.8% rise in the previous quarter. The producer price index came in at 0.5% in the March quarter, following a 0.6% gain in the prior period.
In the upcoming trading week, we see a number of high impact economic events, with the monetary policy decision from the Federal Reserve headlining. Markets are expecting no change in policy. Other key economic reports from the US include the jobs report, personal income and spending, trade balance, factory orders, ISM PMIs, Markit PMIs, pending home sales, Chicago PMI, construction spending and PCE price index.
Eurozone will release reports on GDP growth, unemployment, Markit PMIs and inflation. Investors will also look forward to Markit PMIs from the Eurozone, France, Spain, Italy and Germany as well as the UK.
Japan’s economic reports in the upcoming week include consumer sentiment and Nikkei PMIs. The Reserve Bank of Australia will issue an update on its monetary policy. Australia will also issue data on new home sales, trade balance, building permits and manufacturing and services reports.
The US dollar surged against the Japanese Yen last week, ending the week with a 1.3% gain. The greenback could not, however, breach the 110 level, which could continue to be a major resistance level for the USD/JPY pair in the week ahead. If the US Fed doesn’t signal a June rate hike during its meeting next week, the pair could tumble back to the 108 level.