Daily Market Pulse

Another solid week for the dollar


It is another blockbuster day for US economic data, as markets get to digest the latest and rather catchily named Core Personal Consumption Expenditures (PCE) Price index, supported by the latest Michigan Consumer Sentiment and New Home Sales data. The Core PCE matters, as it is the Fed’s preferred index for measuring inflation, so any sign of weakness could feed into the Fed’s thinking on future rate hikes and vice-versa. PCE data come in higher at +0.6% actual vs +0.5% expected, prior to +0.2% (revised higher from +0.1% previously). With the yearly +5.4% actual vs 5.0 % expected, prior + 5.3% (revised higher from +5.0% previously). Any sign of weakness will likely have the same impact to the greenback on the day. However, the DXY has had a steady week so far.



Up until this morning, the single currency has had a fairly sideways week, with EUR/USD remaining close to the recent low. Given the relative strength of US data over Europe and notwithstanding the cries from within the ECB to keep to an aggressive tightening path, those ever-expanding rate dynamics make it hard for the single currency to currently make any serious headway against the resurgent greenback, hence the steady move lower for EUR/USD during February.



The pound has had a strong week across the board, aside from GBP/USD, which remains at the mercy of the resurgent dollar. With UK data improving alongside the fiscal outlook, this climate of a stronger pound versus the rest, against a weaker pound versus the dollar, could be with us for a while. Looking ahead, next week’s BoE governor Bailey speech will matter, especially given recent comments from the likes of the BoE’s Mann, who have adopted a more hawkish mantra of late, suggesting the potential for a higher terminal rate, were the improving UK data to persist.



USD/JPY has risen by around 0.3% overnight, but that really only tells half the story, as the pair (and broader yen crosses) have been subject to some serious bouts of volatility, driven by the first major speech from impending BoJ governor Ueda, and aided by the latest Japanese inflation report. Whilst headline inflation rose to 4.3% (from4%), markets had been expecting an increase to around 4.5%. As for Ueda, he stuck to the Kuroda mantra on continuing YCC for now and would not be drawn into specifics on when the BoJ might look for an exit. For a while, the yield on the 10-year JGB actually moved under the BoJ’s ceiling of 0.5%, but that move has since reversed.



USD/CAD has trended higher throughout the week, aided by the powerful trio of softening oil prices, a strong greenback, and softer Canadian inflation data, which has seemingly supported the BoC’s recent decision to pause rate hikes. With no keynote Canadian data due, USD/CAD will likely be impacted by how the broader greenback performs on the day.



USD/MXN briefly declined to a new cycle low yesterday, before reversing to close near the session open, with attempts to mark further Peso gains likely to be influenced by incoming US data and the impact it has on the dollar.



USD/CNY has just risen to a new 2023 top, rallying by a worthy 0.6% during the Asian and European sessions today. USD/BRL continues to buck the trend this week, with the pair slipping a further 0.15%, as the pair descended to a fresh two-week low.


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