Weekly currency news: dollar, yen firm as global equities tank
The dollar and the yen outperformed their peers last week, with the euro and the pound falling sharply, in a context of risk aversion, as global stock markets plunge on concerns that the Federal Reserve might ramp up its rate hike path this year.
The Bank of England offered a brief respite to the pound on Wednesday with the unexpected hawkish tone of its monetary policy meeting, although the sterling gave in to dollar strength and closed the week at three-year lows against the USD.
This week we have an interesting calendar ahead, with special interest in the Eurozone Gross Domestic Product, the UK Consumer Prices Index, or the USD retail sales.
Currencies last week
- EUR/USD reversal from 1.2500 extends to 1.2200
- GBP/USD: dives to 3-week lows at 1.3800
- EUR/GBP: sideways movement between 0.8700 and 0.8900
- USD/JPY: testing support at 108.00 area
Main events this week:
The U.S. calendar opens on Wednesday with January’s Consumer Prices Index data. With the market especially sensitive about the chances of the Fed accelerating its rate hike path, a strong inflation reading might add buying pressure on the dollar.
At the same time on Wednesday, the US Census Bureau will release the retail sales data. Consumption is an important contributor of U.S. GDP and in that sense, strong retail sales figures tend to have a positive impact on the dollar and vice-versa.
On Thursday, the U.S. industrial production and the capacity utilization will show the strength of the manufacturing sector and might have a moderate impact on dollar volatility.
On Friday, we will be attentive to the U.S. housing starts figures and building permits which shows the current momentum and the near-term trends of the construction sector and might have a certain impact on the dollar.
In the Eurozone, calendar the only event worth mentioning the Preliminary Gross Domestic Product. According to the advanced estimations, Eurozone economy grew at a 2.6% pace and unless there is a relevant revision of these figures.
In the UK on Tuesday, the market will be attentive to the Consumer Prices Index. Inflation has remained well above the Bank of England 2% target rate for the last 10 months. thus another strong CPI reading would add pressure to the BoE to confirm another interest rate hike in 2018, which might offset the current pound weakness.
On Friday, National Statistics will release the UK Retail Sales, which according to previous reports might have picked up in January, the pound would need strong retail sales to shrug off the current bearish trend.
In the Japanese calendar, on Wednesday the machinery orders, a leading indicator of business capital spending that has is expected to have contracted in December, after the strong advances in the previous two months. A larger than expected decline might have a moderately positive index on the yen.