After showing some signs of life yesterday, the U.S. dollar is again trading on its back foot.
The failure of the greenback to capitalize on the hawkish slant of yesterday’s Fed statement is concerning. The Bloomberg Dollar Spot Index remains near a 3-year low.
In what was Janet Yellen’s final meeting as head of the Federal Reserve, the FOMC left interest rates unchanged. However, central bank hinted at future interest rate hikes and changed their language on its inflation outlook. Fed Fund Futures confirm that at an interest rate hike in March is now nearly 100% priced-in to the market. Nevertheless, the greenback remains weak against the majority of its counterparts.
There are a number of economic releases slated for today but based on yesterday’s price movements they are unlikely to materially change the direction of the greenback. Weekly jobless claims held near 40 year bests. Later, two different manufacturing indexes are expected to show nearly no change from the month prior. The whopper of the week continues to be Friday’s Non-Farm payroll print. Economists expect the economy added 180K jobs in January after a mediocre 148K reading in December. The unemployment rate is expected to hold 4.1%. Beyond the headline readings, we will be paying close attention to the wage growth.
The common currency jumped higher again versus the U.S. dollar, buoyed by strong economic data. Indeed, data showed euro-area manufacturing grew at one of the fastest paces on record in January led by strong growth in Germany and the Netherlands. The persistent Euro strength will likely cause some European policy makers to voice their discomfort. Yesterday, ECB Executive Board member Benoit Coeure said that increased moves would lead to “unwarranted tightening” of monetary policy to combat the currency’s strength.
The pound sterling showed off its resilience once again overnight, pushing modestly higher against the greenback following poor British economic data. HIS Markit reported its Purchasing Managers Index for U.K. manufacturing fell last month to the lowest level since June. There are still lingering uncertainties surrounding Brexit but currency traders have seemed to ignore these in recent months.
The sterling rallied 5% in January, the best start to a year on record on expectations that Britain will gain a transitional deal with the European Union.