After last week’s dramatic NFP numbers the rise in the USD was as expected. The index reached an eleven and a half year high. Today it is pulling back partly on weaker than expected retail numbers and partly short covering and profit taking.
In the equity markets, the week started with down moves in the US and notably in the FTSE and strength in the European bourses as the QE buying begins at the ECB. As the USD pulled back today the US equities recovered some ground but a down week so far.
EURUSD got to 1.049 earlier in the weak and that triggers again the discussion as to whether parity will be reached. Some analysts have predicted that possibility by the end of this year, on Tuesday it didn’t look as if it would take that long. This month has seen it fall 850 pips but today saw a respite. Short covering and US data combined to produce a rally that now hovers around 1.06.
Not only is the Euro dealing with recent USD strength and data, but also the launch of QE last Monday. Add to that the spectre of the Greek situation still hanging over the EZ and we can understand why it may fall further. There has been a small amount of better than expected data that may show early signs of improvement, but its all very fragile and outweighed by the ‘bigger picture’.
Meanwhile, in NewZealand, the Reserve Bank was less dovish than some predicted and that brought strength to the Kiwi. What we are seeing increasingly is the use of the term ‘data driven’ when central banks predict the future of their monetary policy decisions. In the end it was neither hawkish or dovish, it could go either way! The Aussie dollar benefited from some good employment numbers. These events all added to the stall in the relentless rise of the USD. However commodity prices are still falling overall which will continue to weigh on the CAD, AUD and NZD. An important group to monitor.
The drop in Gold that began in January continued apace this week and the pause in the USD rally today, unlike the US equities, did not stop the downward momentum. It is trading at December lows of 1150.
The UK has had reasonable trade data this week but missed the manufacturing estimate. Mr. Carney has indicated a likely dip in inflation but remains firm that he expects rate rises going forward and does not see the need to ‘ease’. However the BOE have the option to lower rates should inflation slow too much and Mr. Carney’s warnings, which could be seen as dovish, still cause concern despite his ‘hawkish’ outlook. Its a very ‘flexible’ stance from the BOE governor.
Canadian employment numbers tomorrow and the US PPI and consumer sentiment and the weekend to pull it into focus!
Judith Waker
0 Comments