Weekly currency news: U.S. dollar rally loses steam
The dollar lost ground last week, especially against the euro and the yen, as risk appetite waned after U.S. Republican senators announced that they will delay the introduction of the corporate tax cuts plans, which has raised concerns about the Government’s chances to pass the ambitious Tax Bill proposed by Trump’s administration.
In the UK, the pound remained vulnerable during most of the week, weighed growing scepticism on May’s ability to deliver a good Brexit deal although the upbeat UK industrial production figures on Friday have eased political concerns and improved confidence on the strength of UK economy.
This week we will have a busy calendar with the release of key macroeconomic indicators like the UK, U.S. and euro zone Consumer Prices Index, the euro zone Gross Domestic Product and U.S. Industrial production.
Currencies last week
- EUR/USD picks up from 3-month lows at 1.1555
- GBP/USD: limited below 1.3200
- EUR/GBP: bounces up from 0.8800
- USD/JPY dives towards 113.00 as risk appetite wanes
Main events this week:
The U.S. calendar opens on Wednesday with October’s retail sales and the Consumer Prices Index figures. With only several weeks to the key December Fed monetary policy meeting, a strong inflation reading would increase confidence on an interest rate hike and might increase demand for the dollar.l
On Thursday, the market will be focusing on the U.S. industrial production and capacity utilization. The industrial sector is a major contributor to the U.S Gross Domestic Product, and therefore strong improvements in industrial activity and the capacity utilization increase the confidence on the economy and strengthens the dollar.
On Friday, the U.S. housing starts and building permits will provide some insight into the strength of the construction sector and might have a moderate impact on the dollar.
In the Eurozone calendar, on Tuesday, Eurostat will release the preliminary reading of the Q3 Gross Domestic Product. The advanced estimation showed that the economy accelerated to a 2.5% yearly growth. Relevant revisions of these figures might have some impact on the euro.
On Thursday, the focus will be on the Consumer Prices Index figures. With inflation in the euro area remains well below the 2% target of the ECB, the euro would need a strong CPI to increase pressure on the BCE to accelerate its monetary tightening plan, which would support the euro.
On Friday, all eyes will be on ECB Draghi’s conference. The main point of interest will be the bank’s tapering plan and the chances of any interest rate hike in 2018. The bank however, has been very cautious managing the removal of its stimulus program, thus we do not expect any strong impact from this event.
In the UK calendar on Tuesday the focus will be on the UK Consumer Prices Index figures. UK inflation reached 5-year highs at 3% in September, but is expected to recede over the next months. The pound would need consumer prices to remain high to continue its recent recovery.
On Tuesday and Thursday, investors will keep an eye on the conferences of BoE Governor Mark Carney. His comments about the outlook on inflation, the UK economic perspectives and the bank’s monetary policy might have a relevant impact on the pound.
In the Japanese calendar, the only event worth of note will be the Q3 Gross Domestic Product. According to market estimations, Japanese economy is expected to have grown for the seventh straight quarter, which might have a moderately positive impact on the yen.