The US dollar rose 0.5% against major currencies on Wednesday as traders welcomed a strong round of economic data. January retail sales jumped by 5.3%, far above the consensus (1.1%), suggesting that some of the latest round of one-time stimulus payments rapidly found its way to retailers. The Producer Price Index (PPI) leaped 1.3%, far above the consensus, 0.4%. Industrial production rose 0.9%, well above the consensus, 0.4%. Against this backdrop, the USD found demand and U.S Treasury yields were able to consolidate the recent gains. Highlighting today’s calendar will be the week's U.S initial jobless claims report, as well as January’s housing starts and building permits data.
The common currency tumbled almost 0.6% against the greenback after U.S. 10-year Treasury yields consolidated the recent move. The EUR also took a hit from downbeat economic data. Car sales in the Eurozone failed at the start of 2021 as new car registrations plunged by 24.6% year-over-year in January, down sharply from a 2.8% dip in December, driven primarily by sizeable declines in Germany and Spain, by 31.1% and 51.1%, respectively. Looking ahead, market participants are still concerned about a delay in Covid-19 vaccine rollouts across Europe. To complicate the matter, health care workers in France and Germany have raised concerns about the side-effects of AstraZeneca's Covid-19 shot. This threatens to hamper the EU's already-lagging inoculation drive.
Yesterday, the British Pound lost further territory (-0.3%) over the U.S dollar, on the back of surging U.S Treasury yields, and broad U.S. dollar strength. Still, January’s consumer prices report was significant, not so much for the rise in the headline rate of the Consumer price index to 0.7%, from 0.6% in December, but for the big changes to the weights of the components. The recent inflation figures suggest that the odds of any imminent Bank of England monetary policy loosening appeared to diminish, to the benefit of GBP rates. Later today, the GfK Consumer Confidence for February is expected to drive some interest.
The Japanese yen managed to break a sequence of four consecutive sessions of losses, edging up 0.15% against the USD on Wednesday. The strong Japanese data was the main catalyst, which provided support to the JPY. Exports rose 6.4% year-on-year in January, after the 2.0% increase in December, below the consensus, 6.8%. Calendar effects were favorable, but Chinese demand for processed commodities picked up at the margin, while exports to the U.S. also rebounded after December’s weakness. On the manufacturing front, Core Machinery Orders for December climbed 5.2%, a third straight gain and well above the market’s expectations of -6.1%. Looking ahead, investors will be keeping a close eye on the U.S 10-year and 30-year yields’ movements.
The Canadian dollar printed some losses (-0.11%) against its U.S counterpart on Wednesday. Despite the strength of oil prices, the currency is still struggling to hold its week’s strong levels. On the economic front, Canada's headline inflation index rose 1% in January compared with the same month last year, accelerating from the end of 2020 and poised to go higher in the next few months. According to some economists, even if inflation were to temporarily top 3%, the upper threshold of the Bank of Canada’s (BoC) control range for its 2% target, the BoC would be unlikely to change its policy stance. Today, the market will wait for ADP Nonfarm employment change and keep an eye on the U.S bond market.
The Mexican peso fell 0.26% against the U.S dollar for the third trading session in a row, on Wednesday. The MXN’s drop was due, in part, to the deep freeze which brought havoc to the Texas energy sector, hence Mexican factories across parts of northern Mexico reported $2.7bn in losses from blackouts that extended to a second day on limited natural gas supplies from Texas. Today, there is no material economic data to be released, thus the U.S bond yields’ movement and the weather condition in Texas will be widely eyed.
The Chinese markets were closed for the Chinese New Year celebrations. The Chinese yuan remained steady in offshore trade, on Wednesday. Onshore trading in the yuan resumes today as Chinese markets reopen.
The Brazilian real declined 0.73% against the greenback in catch-up trade after FX markets reopened on Wednesday after remaining closed for two days due to the Carnival holiday. The public account remains under the investors’ radar, amid risks that a renewed emergency aid will threaten the spending ceiling. In addition, fresh concerns over government measures to deal with truck drivers, as well as a delay in Covid-19 vaccine rollouts should batter the BRL down.