Weekly Review April 3
The dollar recovered ground following a sharp decline on Monday, although there was a lack of conviction in overall moves with position adjustment having an important impact and triggering uncertainty surrounding market direction.
The Conference Board consumer confidence index strengthened to 125.6 from 116.1 the previous month which was the strongest reading since December 2000, although there was a downward revision to the University of Michigan consumer confidence index.
Jobless claims declined slightly to 258,000 in the latest week from 261,000 previously. The final reading for 2016 fourth-quarter GDP was revised up to 2.1% from 1.9%.
President Trump issued executive orders in an attempt to narrow the trade deficit through stricter regulations and enforcement of laws.
Boston Fed President Rosengren stated that four interest rate increases were needed during 2017 given the risks of overheating. New York Fed President Dudley made hawkish comments on Thursday as he described that growth and inflation risks were gradually shifting to the upside.
On Friday, however, his comments were more dovish with remarks that the US economy was not overheating and that there was no urgent need to interest rates again.
After declining sharply early in the week following the Healthcare failure, the US currency recovered ground during the week, although it was unable to hold its best levels.
The UK invoked Article 50 on March 29th to formally start EU exit negotiations. The initial response from EU counties was measured, although there was resistance to starting negotiations on a new trade deal before the exit deal had been completed.
The revised quarterly UK GDP data was in line with expectations while the current account deficit narrowed for the fourth quarter.
Sterling overall advanced against the Euro during the week with a dip below 0.8500 for the first time in a month with a slight advance against the dollar after buying support late on Friday.
The German retail sales data overall was slightly disappointing for February, but labour-market data remained robust with a 30,000 decline in unemployment for March after a 17,000 decline the previous month.
The German inflation rate declined significantly to 1.6% for March from 2.2% the previous month and there was also a notable decline in Euro-zone inflation to 1.5% from 2.0% in February.
The decline in inflation dampened expectations that the ECB would move towards a near-term normalisation of monetary policy. There were also source reports from the ECB that the central bank was very wary of shifting policy at the April meeting given fears of a surge in yields and, especially given their view that markets had over-reacted to the slight shift in March’s statement.
The Euro overall retreated during the week due to reduced speculation that there could be a tightening with EUR/USD below the 1.0700 level.
The Chinese PMI manufacturing data rose slightly for March and the services-sector index strengthened to the highest level for five years which underpinned confidence in the global economic outlook.
Canadian GDP data for January was stronger than expected at 0.6% from 0.3% previously while Bank of Canada Governor Poloz was still broadly cautious surrounding the outlook.
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