The U.S. Dollar remains on a downward spiral, falling along with stock indexes and losing ground across the board.
Markets seem to be cooling off, which typically aids the dollar, but not at the moment. It is even priced-in that the Fed will hike interest rates in March with chances standing at 85.0%. Today’s meeting will be the last one featuring Janet Yellen as hands the reins to Jerome Powell.
Additionally, economic indicators are positive, but not translating into greenback strengthening. ADP Employment change revealed an addition of 234K jobs to the economy, exceeding the low estimate of 185K. On Friday, the official figure will be released, but this is a good indication. Pending Home Sales will be out at 10AM and the Fed announcement will be made at 2PM, but no press conference will follow.
The Euro continues to enjoy the fruits of its good economic run, further solidified this morning after a slew of data measuring inflation, unemployment and retail sales showed growth beyond expected. Consumer Price Index for the region is growing at a 1.3% annual pace, better than the expected 1.2%. The Unemployment Rate remains at 8.7% for the region, but it fell in Italy.
German Retail Sales contracted instead of expanding, but the overall health of the economy still boosted the Euro. You cannot debate much against good numbers and that is the Euro’s appreciation at the moment: based simply on robust growth.
The Kiwi has improved by over 1.0% on expectations of tightening, which have increased with upgraded outlooks to inflationary growth and GDP. Overall, commodity-based currencies such as NZD, AUD, and ZAR have enjoyed resurgence since December with healthy commodity markets driven by the normalization of oil prices.
Speaking of normalization, the central banks across the Pacific Rim are preparing to increase their borrowing costs, backed by confidence built in the last 2 years that easing measures were put in place. At the moment, many resource-based currencies in emerging and advanced markets are at a three-year high against the buck. If risk-appetite remains and China stays optimistic, expect the dollar’s decline to continue.