USD

Following on from yesterday’s keynote US inflation report, which reflected ongoing softening, albeit at a slower pace than had been forecast, today has seen the release of the latest Retail Sales data, with sales increasing by a whopping 3% (MoM/Jan), having been expected to have jumped by around 1.8%. Stripping auto sales out of the data, and there was still a 2.3% gain over the past month. The news has helped to push the dollar higher in the immediate trading after the release, with the dollar Index now up over 0.6% on the day. 

 

EUR

It has not been the best of mornings for Euro area data, with Spanish inflation on the rise once again. Whilst there has been a further welcome drop in gas and electricity prices recently, that benefit was completely offset by a rise in core inflation to a new record of 7.5%, up from 7% last month. Furthermore, regional Industrial Production also declined by more than expected, slipping by 1.1% during December, against an expected drop of around 0.8%. The single currency has shrugged off the negative news, with EUR/USD fairly steady and only 0.2% lower ahead of US Retail Sales. 

 

GBP

Following on from yesterday’s better-than-expected UK employment report, the latest data this morning has seen UK inflation falling to a 5-month low. Headline inflation dropped to 10.1% (YoY), beating estimates of a 10.3% reading. On a monthly basis, there was a healthy 0.6% decline, also beating estimates of a -0.4% drop. Core inflation declined to 5.8%, against 6.3% expected. With lower inflation likely to feed directly into the BoE’s future rate hiking plans, it was perhaps no surprise to see the pound falling this morning, with GBP/USD slipping nearly 1%, and GBP/EUR also dropping roughly 0.7% so far.

 

JPY

It looks like a battle between the Bond and Currency markets just now for USD/JPY. On the one hand, the pair has rallied another 0.2% this morning, frustrating yen-bulls and driven by that broadly stronger dollar. However, yields on the 10-year JGB have consistently remained over the BoJ’s ceiling of 0.5% for two days now, as bond markets continue price-increasing expectations that incoming BoJ governor Ueda will expedite a YCC exit. Something looks like it must have to give way soon.

 

CAD

The stronger greenback is helping to drive USD/CAD higher, with the pair rising by another 0.5% during the European morning session, and moving the Loonie further away from those hearty labor report gains at the tail-end of last week. Whilst we may get a move on the back of the US Retail Sales later today, the broad range has held in USD/CAD since the beginning of the year, so diminishing expectations of an imminent breakout dominate price activity. 

 

BRL

Having declined over the past two sessions, the dollar found support across the board through yesterday, helping to lift USD/BRL over 1% from the session open. Clearly, the broader dollar moves are likely to impact the short-term profile for USD/BRL, which is likely to be the case today, however, we will still be monitoring the shape of fiscal policy from Lula’s government to dictate the longer-term directional bas for the BRL.