EUR / USD
The dollar maintained a firm tone ahead of Wednesday’s New York open with the US currency gaining further support from the reassessment of interest rate expectations following Tuesday’s inflation data. There were no major Euro-Zone developments as US trends dominated.
US retail sales recorded a strong rebound for January with a 3.0% increase for January following a 1.1% decline the previous month and well above consensus forecasts of a 1.8% increase. Underlying sales increased 2.3% on the month after a revised 0.9% decline for December while there was an increase in the control group of 1.7%. Headline sales increased 6.4% over the year with a substantial 25% annual increase in food services and drinking places.
The New York Empire manufacturing index recovered strongly to -5.8 for February from -32.9 previously and well above consensus forecasts of -18, although it remained n contraction territory. There was also a similar pattern for orders and production on the month, although there was a reported decline in employment for the first time in over two years. There was a faster rate of increase in price pressures on the month which will maintain some reservations over the inflation outlook.
Companies were more optimistic over the outlook with a small increase in expectations surrounding price increases.
The dollar posted a further net advance after the data with the Euro dipping to lows close to 1.0665 before attempting to stabilise.
The Euro managed to crawl higher to just above 1.0700 against the dollar on Thursday as US yields edged lower with Fed rhetoric maintaining on alert for further rhetoric from Federal Reserve and ECB officials. The US will also release the Philly Fed and producer prices data as well as the latest jobless claims numbers.
US Treasuries edged higher ahead of Wednesday’s New York open, but struggled to gain any significant traction and there were renewed losses after the US data releases. In particular, the increase in prices data in the New York Empire survey triggered further reservations surrounding the inflation outlook. The 10-year yield increased to fresh highs just above 3.80% and the highest level since the first day of trading in 2023.
The NAHB housing index recovered more than expected to 42 for February from 35 previously and above consensus forecasts of 35.
Industrial production data was weaker than expected with no change for January, but this reflected a slide in utilities output due to relatively mild weather conditions with strong manufacturing gains. Higher yields underpinned the dollar and the yen overall remained on the defensive amid adverse yields spreads. The dollar overall posted strong gains to 5-week highs just above 134.30 against the Japanese currency.
There were no comments from Federal Reserve speakers during the day with market moves dominating.
Japan’s core machinery orders data was weaker than expected with a 1.6% monthly increase, but the trade deficit was slightly narrower than consensus forecasts with limited net impact. The dollar overall drifted lower amid wider losses with the US currency drifting just below the 134.00 level.
Sterling continued to drift lower following the latest UK inflation data with expectations that a slowdown in the rate of underlying services-sector inflation would lead to a more dovish Bank of England policy stance. There were renewed expectations that the central bank would opt for one more rate hike at most and speculation that rates had peaked also increased. In this context, any comments from Bank of England officials will be monitored closely.
With increased nerves over a more hawkish Fed policy stance and a stronger dollar, Sterling dipped to 1-week lows just below the 1.2000 level against the US currency
The Euro posted strong gains to 0.8900 before settling around 0.8880. Sterling did find some relief as Wall Street equities pared losses and the UK FTSE 100 index posted a fresh record high. Capital flows into UK assets would provide an element of support for the UK currency.
Sterling found support below 1.2000 against the dollar and rallied towards 1.2040 on Thursday while the Euro held firm just below the 0.8900 level.
The Swiss franc was able to resist further losses on Wednesday despite a renewed increased in US yields. Underlying reservations over the risk of renewed tightening in financial conditions provided net franc protection. The Euro retreated to 0.9870 while dollar gains were held to 0.9460 before fading slightly.
There was little net change on Thursday amid a relatively calm tone in global markets and the dollar settled around 0.9225.