The U.S. dollar continued yesterday’s decline overnight, extending losses across the board.
The dollar initially rallied yesterday morning as data showed an uptick in consumer inflation which boosted interest rate hike expectations. However, a poor retail sales print cut the dollar’s rally short. Consumer spending accounts for nearly 70% of the U.S. economy so a slowdown in spending could cause a downturn for an economy running hot. In addition, some analysts have pointed towards exploding deficits and debt following the recent tax cuts and President Trump’s proposed spending increases as a reason to sell the greenback. Others have suggested that a renewed rally in global equities has increased dollar selling in exchange for stocks. Whatever the exact cause, the trend is clear and simple: the dollar continues to lose.
Today’s economic data backed up the story of rising inflation. Producer prices rose in the month of January and registered slightly higher than expected. A separate report showed that weekly jobless claims rose slightly but remains near the best in four decades. The Philly Fed manufacturing index ticked slightly higher but was unable to materially move the greenback. Later, industrial production will cross the wire and represents the last risk event of the day.
The experienced wild swings yesterday, ending nearly 1% stronger versus the U.S. dollar from its session low. However, the Euro failed to break its 2018 high against the greenback, but it came awfully close. The Euro’s gains can mostly be attributed to widespread dollar weakness, but fundamental data has also buoyed the common currency. France printed stronger than expected employment data and Spanish consumer prices popped higher.
Despite another bout of global “risk on” trading, the Japanese yen gained against the U.S. dollar. In what can be viewed as a contradiction to comments made by other policy makers in days past, Japan’s Finance Minister Taro Aso said “the yen isn’t rising or falling abruptly enough for us to intervene now.” By stating that they are not considering immediate action now has allowed the Japanese yen to extend recent gains.