Dollar Gathers Strength Ahead of Key Inflation
What’s been happening?
Pound Sterling – UK Markets
The British pound dropped to its lowest level in a week against both the dollar and the euro as Brexit uncertainty continues to weigh on the currency ahead of Friday’s vote in the House of Commons, which will be on the Withdrawal Agreement without the Political declaration with an aim to convince the EU to extend the Article 50 to May 22, on Prime Minister Theresa May’s deal. Speaking to reporters, the PM’s spokesman said that the only guaranteed way of leaving the EU by May 22 was for Parliament to approved the deal. In an interview with BBC, the Northern Irish Democratic Unionist Party's (DUP) Deputy Leader Nigel Dodds repeated that his party will vote against the PM’s deal. "We didn't vote for a no-deal, and chances of a no-deal pretty remote,” Doods added. “I don't think we need to scaremonger."
Conservative Party MP Sir Oliver Letwin earlier in the day argued that it was still possible for the PM to get her deal approved in Parliament tomorrow. “If May’s deal fails, we could get results on indicative votes on Monday,” Letwin further elaborated. Meanwhile, lawmaker Jacob Rees-Mogg reiterated that he was supporting the PM’s deal and that he hopes the DUP would “come over it.”
US Dollar – US Markets
The US Dollar Index rose for the third straight day on Wednesday and advanced to its highest level in three weeks boosted by the recovering Treasury bond yields and the macroeconomic data releases.
The U.S. Bureau of Economic Analysis in its third estimate said that the real gross domestic product (GDP) in the fourth quarter expanded by 1.9% on a quarterly basis to surpass the analysts’ estimate of 1.8%. On a yearly basis, the GDP growth edged down to 2.2%. “With this estimate for the fourth quarter, the general picture of economic growth remains the same,” the BEA said. Further details of the report showed that the PCE price index increased by 1.5% (QoQ) in the same period.
In the meantime, Federal Reserve's Vice Chair Richard Clarida in a speech stated the trouble in other countries could increasingly spill over into the U.S. via trade, foreign exchange, and financial channels. Regarding the policy outlook, Clarida argued that the Fed could remain patient amid muted inflation and global risks. Later in the day, New York Fed President John Williams said that the Fed’s monetary policy was well positioned around the neutral rate and that they would rethink the policy path if data showed that the Fed was missing its goals.
Euro – European Markets
The data published by the European Central Bank on Thursday showed that private loans grew by 3.3% on a yearly basis in February to match the market expectation. Earlier in the day, the ECB’s Chief Economist, Peter Praet, argued that there was no particular problem with the economy and the current lending channels but the economy could continue to weaken in the future. “There needs to be a solid monetary policy case before officials act to mitigate the side effects of negative rates on banks,” Praet added.
The European Commission in its latest business and consumer surveys announced that the Consumer Confidence Index in the euro area edged down to -7.2 in March as expected. “The deterioration of euro-area sentiment resulted from markedly lower confidence in the industry and, to a lesser extent, services, while confidence improved in retail trade and construction and remained broadly stable among consumers,” the EC noted in its press release.
What’s coming up?
UK: The UK’s Office for National Statistics on Friday will release the fourth-quarter GDP data, which is expected to show that the economy expanded by 0.2% on a quarterly basis. Other data from the UK will include mortgage approvals, consumer credit change, and total business investment.
US: The U.S. Bureau of Economic Analysis will release the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation. New home sales and the UoM Consumer Confidence survey will be featured in the calendar as well.
EU: Germany’s Destatis will publish retail sales, import price index, and unemployment rate data on Friday.