Weekly currency news: US dollar eases on Fed Powell’s bearish comments
The US dollar has opened the week on the defensive after Fed Powell hinted to a pause the bank’s monetary tightening, on Friday dampening investor’s optimism after a bright employment report.
The US non-farm payrolls report reflected a strong employment creation in December, with 312.000 workers entering the US active population, and salaries growing 3.2%, their sharpest advance in nearly 10 years.
Shortly afterwards, however, the Federal Reserve chairman cooled the enthusiasm affirming that the bank will be watching the economic developments this year to react to an unexpected slowdown, which suggests that the rate hike path will be slower than in 2018.
Datawise, we will have a thin calendar this week, with the exception of the US Consumer Prices Index, therefore, the most relevant events are likely to be the speeches of Fed’s Powell and BoE´s Carney and the release of the FOMC minutes.
- EUR/USD: upside limited below 1.1500
- GBP/USD: remains steady above 1.2600
- EUR/GBP: nervous consolidation around 0.9000
- USD/JPY: returns to 108.00 after flash crashing to 104.64
Main events this week:
The US calendar will open on Wednesday with the minutes of December’s Fed meeting. The bank raised rates last month after having sent the message that interest rates are approaching neutral levels, which suggests that the bank will slow down its monetary tightening cycle this year. In this context, any new insight into the bank’s plans might have a significant impact on USD volatility.
On Thursday, the focus will be on Fed Powell’s speech. Again, his comments about the economic perspectives and the bank’s plans to react to an economy that might be growing at a slower pace might have some effect on the USD.
On Friday, 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.
In the Eurozone, on Thursday, the European Central Bank will release the minutes of the last monetary policy meeting. The Bank has ended its bonds purchasing program in December, and the market will be eager to know more about the bank’s monetary tightening calendar. Anything new in that point is likely to have a relevant impact on the pound.
On Friday the focus will be on the ZEW Economic sentiment index. This survey measures the optimism of the institutional investors and might have a moderate impact on the euro.
In the UK, on Wednesday, we will be attentive to BoE Governour Carney’s speech. With the investors increasingly wary about the prospects of a hard Brexit, Carney’s views on the economic perspectives will be observed with interest and might have some impact on the pound.
On Friday there is a string of UK indicators scheduled to be released. The most relevant ones, regarding currency markets will be the manufacturing and industrial production and the December’s Gross Domestic Product although, with the political developments on the spotlight, the impact of macroeconomic data tends to be muted.
In Japan, on Thursday, the Ministry of International Affairs will release the overall household spending, an indicator measuring consumer optimism that has weakened in the previous two months. Another downbeat reading in November would deteriorate economic sentiment further and might weaken the yen.
On Wednesday, the Bank of Canada will release its monetary policy decision. The bank is widely expected to keep rates unchanged at the current 1.75% but Governor Poloz and deputy Carolyn will hold a press release after the decision. Their comments about the economy and the bank’s policy might move the Canadian dollar.