Weekly Currency News: Fed’s cautiousness weighs on the dollar
The dollar went through a sharp reversal last week; despite the widely expected Fed interest rate hike, as the bank’s cautious stance disappointed investors. that were hoping for signals of further acceleration in the monetary tightening cycle.
The pound sterling bounced up strongly, as the minutes of BoE’s monetary meeting surprised the market, with committee member Kristin Forbes voting in favour of hiking rates for the first time in eight months, which boosted hopes that other members might follow suit.
This week, we will be attentive to Yellen’s speech, on Thursday, but also to other relevant indicators like the U.S. Durable goods orders, UK retail sales or the EU manufacturing and services activity figures.
Currencies last week
- EUR/USD: five-week highs near 1.0800
- GBP/USD: surges more than 2.5% and returns above 1.2400.
- EUR/GBP: rejected at 0.8800 area
- USD/JPY dives three-week lows sub 113.00.
Main events this week:
The U.S. calendar opens on Thursday with Fed Yellen’s speech. After having raised interest rates by a quarter of a point last week, investors’ will be focusing on Yellen’s outlook on the economy and the possibilities of an acceleration of the monetary tightening path.
Later on Thursday, the Commerce Department will release the U.S. New Home Sales figures. The housing market has has been showing up and downs over the last months, and in the current situation, a downbeat reading in home sales might add downside pressure on the greenback.
On Friday the focus will be on the U.S. durable goods orders, which are expected to have increased for the second consecutive month in February. A better than expected reading on durable orders might have a positive impact on the dollar.
The most important Eurozone indicator will be the preliminary Markit services and manufacturing PMIs. With activity in both sectors at its best level in the last years, another positive reading in these indexes would increase the Eurozone economic outlook, which might increase demand for the euro.
The UK calendar opens on Tuesday with the UK Consumer Prices Index figures. Inflation in the UK has accelerated over the last months, nearing the 2.0% BoE target for price stability and adding pressure to the central bank to hike rates. Another increase in prices in February might help the pound to extend its recent rebound.
On Thursday, National Statistics would release the UK retail sales. Higher prices, due to pound weakness, are starting to hurt consumption which contracted in the last two months. Another downbeat reading in February might add selling pressure on the pound
The Japanese calendar opens on Tuesday with the minutes of the last monetary policy meeting. Investors will be attentive for info about the direction of the bank’s monetary policy. With Japanese economy showing signals of improvement, any hint towards monetary policy normalisation would have a positive impact on the yen.
On Tuesday, the focus will be on the all industry activity index, an advanced gauge of Japanese economic growth that dropped in December after having shown a steady growing pace over the previous months. Another contraction in February might have a negative impact on the yen.
Finally, on Friday the Japanese Cabinet office will release the leading and coincident indexes, a composite index analysing the current situation and the perspectives of the Japanese economy. A bright reading here tends to be positive for the yen and vice versa.