The dollar faced a slowdown on Friday after comments from Federal Reserve Vice Chairman Richard Clarida. During an interview with CNBC, Friday suggested we faced a haltering global economy, vindicating the Fed’s dovish monetary policy. Those words seemed particularly prescient given the data coming out of the US yesterday, with The National Association of Home Builders’ monthly confidence index dropping to 60 in November, compared with 68 last month.
This figure, the lowest since August 2015, led to the dollar index, trading slightly lower at 96.18 this morning, down from as high as 97.34 as recently as Thursday. With the FED indicating that rate hikes will slow, and the benefits from the tax cuts reaching their natural conclusion, some fear that USD will face significant price corrections over the coming months.
The pound had a relatively quiet day yesterday, with no high-profile government resignations, or myopic outbursts, allowing traders to collectively avert their eyes from the bumpy Brexit process that has transfixed their gaze for months.
A certain malaise appears to have been hanging over the pound for a while now, but there is the scope for volatility after some high profile speeches scheduled by both Deutsche Bundesbank President Jens Weidmann, and the Inflation Report Hearings featuring the Bank of England Governor and several Monetary Policy Committee members, who will testify on both inflation and the overall economic outlook.
Deutsche Bundesbank President Jens Weidmann is one of the most influential members of the European Central Bank, so one can expect traders to be hanging on his every word. With Italy defying the EU on public spending, populist movements growing around Europe, debt far higher than EU aims and (of course) Brexit, Weidmann’s speech may overrun.
The European Commission is set to respond to the Italian budget on Wednesday for the second time, with Italy standing firm with regards increasing public spending and reducing the pension age in open defiance of EU rules. Should the EU show even a modicum of weakness with how it reacts to Italy, expect howls of ‘unfairness’ from Brexiteers in this country, and further GBP/EUR volatility.
The Canadian dollar has been fairly weak against USD of late, as the depressed oil market weighs heavily on a currency that is inextricably linked to the commodity. CAD has stood fairly stable against GBP over the last few days, with little in the way of economic surprises to differentiate the pair.
Expect that to change on Friday, when we receive Canada’s Consumer Price Index (YoY) data. It is currently forecast at 2.2%, well within the bank’s target of 1-3%. Should we see this rise significantly beyond the forecast, we can expect the central bank to up interest rates to cool the economy and manage inflation. These higher rates may tempt foreign investors, and we could expect to see the Canadian Dollar to rise accordingly.
The Japanese traditionally performs well during periods of times of high economic stress thanks to its status as a ‘safe haven currency,’ and once again this has proved the case. Federal Reserve Vice Chairman Richard Clarida’s comments regarding the strength of the American economy have ensured the status quo is maintained, and USD has been steadily dropping against JPY for the past week, currently standing at nearly 1.5% off the rates we saw towards the middle of last week.
GBP/JPY has remained broadly level meanwhile, although we have some significant data coming out of Japan on Wednesday. The National Consumer Price Index (YoY) should inspire some movement, with a forecast 1.4%, 0.2% more than what was achieved the year prior.