Kantox currency update: Fed’s cautious stance weighs on the dollar
The US dollar is pulling back against its main peers on Friday after the recovery attempt seen on Thursday, with the market assuming that the Federal Reserve will hit the brakes on interest rate hikes this year.
Fed Chairman, Jerome Powell maintained the dovish tone of the last months in a speech at the Economic Club in Washington where he insisted that the uncertainties in the global economy and the growing US debt advise being patient raising rates.
EUR/USD: steady at three-month high above 1.1500. The euro pulled back from 1.1570 to intra-day lows at 1.1485, weighed by the downbeat French industrial production on Thursday, to bounce up on Friday’s early trading, with the dollar on the defensive after Fed Powell’s speech. As at London market opening times, the EUR/USD is trading at 1.1530.
GBP/USD: steady below 1.2800. The sterling was capped again at 1.2800 on Thursday but it remains fairly steady above 1.2700, with the market focusing on the political developments as Theresa May struggles to pass her Brexit proposal through the UK parliament. As at London market opening times, the GBP/USD is trading at 1.2745.
USD/JPY finds support at 107.70. US dollar reversal from 109.00 highs on Wednesday was contained yesterday at 107.70 before picking up on Friday although, in a wider perspective, the pair is biased to the downside, as the Fed’s forward guidance is eroding the monetary policy differential between the BoJ and the Fed, major support for the USD. As at London market opening times, the USD/JPY is trading at 108.25.
In the Calendar Today
Today we will have the release of a string of indicators in the UK, a string of UK. The most relevant ones, regarding currency markets will be the manufacturing and industrial production and the December’s Gross Domestic Product although, the focus on the Brexit parliamentary debate, the impact of these figures is expected to be limited.
In the Eurozone, the ZEW Economic sentiment index is expected to reflect the deterioration of the area’s economic outlook. In this case, the risk for the euro is skewed to the downside.
In the US, National Statistics will release the Consumer Prices Index for December. With the market dialling back rate hike expectations, the risk is on a weaker than expected inflation that would offer support to Fed’s plans to slow down monetary normalisation and might increase selling pressure on the US dollar.
09:30 GMT UK: Industrial Production (MoM) (Nov)
Previous: -0.6% Expected: 0.2%
09:30 GMT UK: Gross Domestic Product (MoM) (Nov)
Previous: 0.1% Expected: 0.1%
10:00 GMT EZ: ZEW Economic Sentiment Index (Jan)
13:30 GMT US: Consumer Prices Index (YoY) (Dec)
Previous: 2.2% Expected: 2.2%