Weekly currency news: US dollar soars on global growth concerns
The US dollar advanced firmly last week, with the market gripped by risk aversion as the confidence about a US-China trade deal faded and investors’ fear of a global economic slowdown pushed the market towards safe assets.
The British pound posted its worst decline in more than three months, weighed by the gridlock in the Brexit which has forced the Bank of England to downgrade UK growth forecasts. In the Eurozone the euro lost more than 1%against the dollar, hit by the negative outlook of the Euro Zone economy.
This week we will have some interesting events in the calendar, namely the Gross Domestic Product and Consumer Price Indexes of the UK and US, the Japanese Gross Domestic Product or the US retail sales.
- EUR/USD plunges more than 1% and approaches 1.1300
- GBP/USD dives back below 1.3000 highs
- EUR/GBP: hovering around 0.8700
- USD/JPY: upside, limited below 110.00 area
Main events this week:
In the US calendar, on Tuesday Fed Chairman Powell’s speech will attract some attention. Although he is unlikely to disclose any news regarding the bank’s monetary policy, his comments about the economic perspectives may have influence over dollar volatility.
On Wednesday, the focus will be on the US Consumer Prices Index. After the positive surprise in January’s employment figures, a strong inflation reading would add pressure on the Fed to consider another interest rate, and that would be positive for the US dollar.
On Thursday, the focus will be on the US retail sales report. Consumption is an important contribution to the US GDP and, in a context of growing economic uncertainty, retail sales will show the strength of consumer confidence and might have a relevant impact on the US dollar.
The Eurozone calendar opens on Wednesday with December’s Industrial production, which is expected to have contracted for the third time in the last four months. With the Eurozone economy displaying consistent signs of a downtrend, a weak industrial production reading might increase negative pressure over the euro.
On Thursday, the preliminary Eurozone Gross Domestic Product is expected to confirm that economic growth slowed down to a 1.2% year-on-year rate in the fourth quarter. Any relevant revision of these figures might have some impact on euro volatility.
The UK, On Monday there is a string of indicators scheduled, with the main focus on December’s Industrial and Manufacturing Production and Gross Domestic Product figures. After the BoE cut the 2019 growth forecasts last week, the market will be interested to assess the impact of Brexit uncertainty into the industrial activity and the economy in general.
On Wednesday, National Statistics will release the UK Consumer Prices Index. Inflation has been falling during the last months to hit its lowest levels in two years in December. If the trend continues in January, the impact on the pound would be negative.
In the Japanese calendar, the most relevant event will be the fourth quarter’s Gross Domestic Product reading. After the 0.6% contraction seen in the third quarter, another negative reading in the first quarter would set the economy in a recession which might have a negative impact on the yen.
On Friday, the Ministry of Economy will release the Japanese Industrial Production, which is expected to confirm the 0.1% decline shown in the preliminary reading. A revision of that reading might have some near-time impact on the yen.