Weekly Review April 17
The dollar came under pressure during the week with a lack of support from US economic data while Trump’s comments undermined the currency. Geo-political tensions were important in providing defensive yen support during the week.
The US employment data remained strong with jobless claims at 234,000 in the latest week, little changed from the previous week and close to 43-year lows. There was also a further strengthening in the University of Michigan consumer confidence index at 98.0 from 96.9 previously.
The most important US releases came when markets were closed on Friday with a weaker than expected headline 0.2% retail sales decline for March, the second successive decline. Underlying sales were also weaker than expected with a second successive unchanged reading.
CPI inflation data was also weaker than expected with a 0.2% decline in prices for March which cut the annual inflation rate to 2.4% from 2.7%. Core prices also declined 0.1% on the month with a 2.0% annual increase dampening expectations of further Fed tightening.
The dollar came under pressure following comments by President Trump that the dollar was now too high due in part to confidence in his policies. Trump also commented that is was very hard to compete against countries which devalued their currencies and that the strong dollar was hurting.
Trump also commented that China would not be named as a currency manipulator, contrary to his pledge during the election campaign. He also stated that there was a possibility that Fed Chair Yellen could be nominated for a second term, also contrary to previous comments.
The US currency came under significant pressure on the dollar comments with damage compounded by the CPI and retail sales data, although the immediate impact was limited as it came when most markets were closed.
The currency index did find support close to 100.00.
The UK inflation data was slightly stronger than expected with the year-on-year rate holding steady at 2.3% compared with an expected decline to 2.2%. The core inflation rate slowed to 1.8% from 2.0% previously, but the PPI data was stronger than expected.
The labour-market data was mixed with a larger than expected increase in jobless claims offset by rising employment and a slightly stronger than expected reading for average earnings of 2.3% with little impact on monetary policy expectations.
Sterling was able to make net headway against major currencies during the week with a move to near 1.2600 against the dollar and net gains against the Euro with EUR/GBP below 0.8500.
The German ZEW business confidence index strengthened to 19.5 for March from 12.8 the previous month, the strongest reading since August 2015.
There were further dovish comments from ECB officials, although the impact was limited and there were no major shifts in French opinion polls.
EUR/USD fund support below the 1.0600 and rallied to the 1.0650 area as the dollar came under pressure.
There were further geo-political concerns as underlying tensions between the US and Russia continued, although the focus shifted to North Korea during the week as tensions increased amid aggressive rhetoric from US and North Korean officials. The yen gained defensive support on concerns surrounding risk conditions.
The Bank of Canada left interest rates on hold at 0.5% following the latest policy meeting, in line with consensus forecasts. The bank was more confidence surrounding the outlook, but not convinced that the improvement would be sustained.
The Australian employment data was stronger than expected while the Chinese trade and GDP was stronger than expected which helped underpin confidence surrounding the growth outlook.
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