The USD fell 0.3% yesterday after weak retail sales and industrial production data. January retail sales were the largest monthly drop (-0.8%, versus -0.2% expected) since March of last year, with the ‘control group’ figure declining 0.6% on the month. Though the Fed’s Waller spoke yesterday and declined discussing US monetary policy, when discussing the USD’s global status he did note that countries with high domestic inflation have sometimes adopted dollarization. The S&P 500 reach another all-time high yesterday despite losses in its most-influential group, technology.

The USD entered this morning’s North American session mixed against most currency pairs ahead of the US PPI release. The data came in higher than expectations across the various PPI metrics and the USD has gained about 0.15%. March rate cuts odds have receded from 15% yesterday to 10% presently.

EUR/USD gained nearly 0.4% yesterday, in-line with the G10 space. ECB head Lagarde told European Union lawmakers yesterday that risks remain, and policymakers need more assurance that price gains are headed back to target. “The last thing that I would want to see is us making a hasty decision to see inflation rise again and have to take more measures,” adding “We do not have enough evidence yet to have the level of confidence that we are going to hit our medium-term 2% target and that it will be sustainably there.” Investors see less 10% odds of a rate cut at the March 7th decision.

GBP/USD rose 0.3% yesterday, lagging G10 peers after a weaker-than-expected Q4 GDP print (-0.3%, versus -0.1% expected). The report confirmed the economy entered a technical recession in the second half of 2023. At the margin, the fairly significant underperformance of the British economy could boost pressure on the BOE to cut rates sooner than later. BOE member Megan Greene said she needs to see more signs of cooling in persistent price pressures in the UK before she can consider interest-rate cuts.

USD/CAD fell more than 0.5% yesterday, the Canadian Dollar outperforming peers with crude oil prices rising over 3% from pre-North America session lows. Investors await the next key data piece for BOC policy consideration next Tuesday with the domestic CPI release.

USD/JPY dropped 0.4% yesterday but is nearly back to 3-month highs today after BOJ Governor Ueda gave dovish commentary to the Japanese Parliament overnight. Weak Japanese GDP data could give Ueda pause when considering early monetary tightening, driving expectations for a hold at the March decision.

USD/MXN is back to yesterday’s open levels post-US PPI data this morning, the pair largely range-bound for the last several sessions as investors await direction on US Fed policy. A paper co-authored by Bank of Mexico Deputy Governor Jonathan Heath says the final reduction in inflation toward the central bank’s 3% target in 2025 “will be more difficult than that achieved in the previous year, which definitely calls for maintaining a restrictive stance for an extended period, beyond 2024”.