The US Dollar Stages Modest Recovery on Powell's Remarks
What’s been happening?
Pound Sterling – UK Markets
The British pound erased yesterday’s gains against the dollar and stayed virtually unchanged vs the euro on Thursday amid a lack of significant macroeconomic data releases from the UK. Moreover, today’s Brexit headlines failed to send a clear message about the possible outcome of next week’s vote.
In an interview with BBC Radio, British Business Secretary Greg Clark explained that a no-deal Brexit would be a disastrous situation and added that the whole Parliament would need to establish an agreement over a Brexit deal. Meanwhile, Labour Party leader Jeremy Corbyn argued that a general election must follow if the government fails to pass their proposed deal. “ We are keeping all options open including a referendum, but the general election must be the priority before a second referendum,” Corbyn stated. On other Brexit-related news, Prime Minister Theresa May’s spokesman, James Slack, reiterated that the PM was working to get further assurances from the EU on Brexit deal before the vote in the Parliament.
US Dollar – US Markets
The US Dollar Index, which tracks the greenback against a basket of six major currencies, recovered a large part of Wednesday’s losses as FOMC chairman Powell’s remarks helped it shake off the bearish pressure that was created by the FOMC’s dovish tone. While speaking at The Economic Club of Washington, Powell said that there was no particular plan to raise rates a specific number of times. Commenting on the economy, “the labour market by many measures is‘very strong, we see continued momentum in economic data,” Powell added. Additionally, Richmond Fed President Tom Barkin noted that rates haven’t reached the neutral yet.
Although St. Louis Fed President Bullard later in the day argued that the Fed has reached the “end of the road” on rate hikes, the greenback didn’t have a difficult time clinging to its daily gains. Earlier in the day, the weekly data published by the U.S. Bureau of Labor Statistics showed that initial jobless claims fell to 216,000 from 233,000 in the week ending January 4.
Euro – European Markets
The shared currency weakened against the dollar on Thursday amid escalating concerns over the potential negative impact of the trade conflict with the United States. Cecilia Malmström, the European Union’s Commissioner for Trade who yesterday noted that they failed to reach an agreement on the scope of trade negotiations with the U.S., told reporters that the optimism in trade talks had eroded.
Meanwhile, in the accounts of the December monetary policy meeting, the European Central Bank noted that there were growing signs that investors were becoming more concerned about the global growth outlook since the previous meeting that took place on October 24-25. “The risks surrounding the growth outlook could still be assessed as broadly balanced. However, the balance of risks was moving to the downside, owing to the persistent prominence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility, the ECB said. “Monetary policy needed to remain prudent, patient and persistent and to continue to be data-driven in the period ahead.”
What’s coming up?
UK: The economic docket in the UK will feature industrial and manufacturing production, trade balance, and monthly GDP growth data on Friday.
US: The U.S. Bureau of Labor Statistic is scheduled to publish the December inflation report. Markets expect the annual core-CPI to stay unchanged at 2.2%.
EU: The ZEW will publish its Economic Sentiment report for the euro area on Friday.