Weekly Currency News: dollar rally loses steam
The dollar hit long-term highs against a basket of currencies last week although it retreated sharply after the Federal Reserve’s minutes suggested a relevant degree of uncertainty about its commitment of three interest rate hikes for 2017.
On Friday, U.S. non-farm payrolls showed a slower than expected increase in employment although the increase on the earnings gauge backed the Fed to pursue its monetary tightening plan, which triggered a moderate pick up for the dollar.
This week, we have a thin calendar, with the U.S. retail sales and Yellen’s conference as the most relevant events. In the EU, UK and Japan we will have second-tier indicators.
Currencies last week
- EUR/USD: bounces up from long-term lows at 1.0345
- GBP/USD: rejected at 1.2400; dives below 1.2200
- EUR/GBP bounces up at 0.8450 and extends beyond 0.8600
- USD/JPY: pulls back to 3-week lows near 115.00
Main events this week:
In the U.S calendar, on Friday investors will be looking at Fed Yellen’s speech. Last week, the bank shed doubt on its pledge to hike interest rates three times this year, which triggered a negative reaction on the dollar. Yellen’s comments about Trump’s policy and inflation might increase dollar volatility again this week.
Later on Friday, we will be attentive to December’s U.S. Retail Sales figures. Consumption is one of the main contributors to the GDP, have been showing a lacklustre performance, triggering doubts about the momentum of U.S. economy. Another poor reading in December might increase dollar weakness.
In the Eurozone, the only indicator worth noting this week will be the November’s industrial production. After a disappointing contraction in October, the euro would need a strong recovery of the industrial output in November to extend its recovery.
The UK calendar opens on Tuesday with the NIESR GDP estimation for the three months to December. The NIESR institute has been warning about a likely decline in UK GDP after the Brexit, due to the lower immigration from the EU. If that possibility takes place it might have a near-term negative effect on the sterling.
On Wednesday, National Statistics will release the UK Industrial and Manufacturing Production figures. Manufacturing output slumped unexpectedly in October; recent PMI figures, however, have shown that the sector is in good shape, thus, we might have a positive surprise in November that helps the pound to regain lost ground.Yen
In the Japanese calendar, the most relevant event will be the Eco Watchers survey, which is released on Thursday. This survey, considered a leading indicator of the Japanese economic trends, improved to an 11-month high in December, increasing hopes of an acceleration of Japanese economy. Another bright result might have a near-term positive impact on the yen.