The U.S. dollar took a beating during yesterday’s session as inflation data failed to surprise to the upside and political uncertainty weighed on the greenback.
CPI registered in line with expectations and failed to provide a breakout reading for inflation that would have spurred speculation over faster interest rate hikes.
However, the bulk of the dollar’s losses came on the heels of the announcement that President Donald Trump fired Secretary of State Rex Tillerson. The White House has also indicated that more turnover is likely in the coming weeks. Tillerson’s firing comes a week after Gary Cohn announced he was resigning as the President’s top economic advisor. Analysts argue that Tillerson and Cohn’s departures may foreshadow more protectionists, anti-trade policies which would be detrimental to the economy and the greenback. Time will tell, but in the meantime today’s main focus will be on this morning’s economic docket.
Fundamental data is unlikely to give the dollar any reprieve. U.S. retail sales unexpectedly fell in February for a third month. Overall sales fell 0.1%, failing to meet estimates of a 0.3% increase. Consumer spending, which accounts for the biggest part of the economy, appears to be cooling after strong gains in late 2017. The docket for the rest of the week is fairly light so there is no much on our side of the pond that could help boost the dollar.
The Euro was the beneficiary widespread U.S. dollar weakness yesterday and maintained its gains overnight despite apparent verbal intervention from the European Central Bank President. ECB head said that the currency’s recent appreciation has been driven more by external factors than euro-area economic data. The Euro retreated modestly on Draghi’s words, but quickly recovered and extended gains following weak U.S. retail sales.
The Australian dollar was the big winner overnight, gaining a half percent against the U.S. dollar. The Australian dollar found support on stronger-than-expected gains in China’s factory output and investment growth. China’s industrial output rose 7.2% in January, beating estimates of a 6.2% gain and indicating an increase in demand for Australian exports.
The New Zealand dollar also gained modestly overnight.