· The dollar edged up on Monday, hovering close to a near three-month high as investors continued to favor the greenback amid global growth concerns, while sterling kept declining on uncertainty over Britain’s exit from the European Union.
The dollar index, which measures the greenback against a basket of six key rivals, gained 0.1 percent to 97.412.
The index was 0.3 percent shy of its recent peak of 97.710 hit last Thursday, its highest since Dec. 14. It is up 1.3 percent this year.
· The euro was basically flat at $1.1232. The single currency had fallen to its weakest level since June 2017 on Thursday, hurt by dovish signals from the European Central Bank (ECB).
· “After the ECB’s big downgrade of the growth outlook for the euro area, together with the weaker-than-expected Chinese export and import data, the worry over the global economy is re-surging again,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“That’s pushing down the euro and other currencies,” he said. “The U.S. is not particularly strong, but other areas are weak. That’s why the dollar is relatively strong.”
· On Monday, most currencies stayed within well-trodden trading ranges before U.S. retail sales figures for January due at 1230 GMT and U.S. February inflation figures expected on Tuesday.
· Mikael Olai Milhøj, senior analyst at Danske Bank, points out that the EUR/USD pair has managed to recover somewhat on Friday but even a weak US jobs number did not manage to lift the cross above 1.1250.
Key Quotes
“As we deem that the US is closer to turning cyclically than the euro zone, if data starts to surprise on the upside, e.g. retail sales today where we have an above-consensus call, it could send EUR/USD towards new lows. After the ECB’s dovish signals, we think the cross could slide towards 1.10 near term.”
“Meanwhile, IMM Positioning data suggested that speculators continue to prefer longs in cyclical commodities like oil and copper – a hint that markets are increasingly positioning for a trade deal and a Chinese growth stabilisation. This hints that the knee-jerk to a trade deal may be limited.”
· EUR/USD Shrugs Powell Interview - Eyes German Data, US Retail Sales
The Euro was battered last Thursday after the ECB not only decided to hold rates but subsequently introduced new liquidity provisions in an effort to counter slower-than-expected growth. The central bank also cut inflation forecasts for 2019, 2020 and 2021 while warning of greater geopolitical uncertainty. The upcoming European Parliamentary elections may soon put the Euro in the global spot light.
German industrial production is expected to fall short of expectations as the largest Eurozone economy cools, and US retail sales may disappoint. Economic data coming out of the US for the past few weeks has been broadly missing estimates as the global economy slows down. If this trend continues, it may tilt the Fed to a more dovish angle to accommodate the economic circumstances and potentially push the US Dollar down.
Conversely, the US Dollar may gain as investors’ risk appetite sours and haven demand rises amid an uncertain outlook. The Greenback in this regard has a unique nature: it has the capacity to gain in times of risk aversion – even if the cause of uncertainty is coming from the US – and when local economic data outperforms. However, this time, the risk may not be directly emanating from home, but from abroad.
· Federal Reserve Chairman Jerome Powell said on Sunday the U.S. central bank does “not feel any hurry” to change the level of interest rates again as it watches how a slowing global economy affects local conditions in the United States.
Rates are currently “appropriate,” Powell said in a wide-ranging interview with CBS’s 60 Minutes news show in which he called the current rate level “appropriate” and “roughly neutral,” meaning it is neither stimulating or curbing the economy.
An economic slowdown in China and Europe and other global issues currently pose the largest risks to an otherwise healthy U.S. outlook, he said, though even in those place he felt “very negative outcomes” were not likely.
· The European Central Bank’s fresh stimulus measures are an adjustment to a new economic reality of slower but still robust economic growth, ECB board member Benoit Coeure was quoted on Monday as saying.
“We are adjusting to the new reality rather than reversing our course; we don’t see signs of a recession at present,” Coeure told Italian newspaper Corriere della Sera.
Coeure added that while it will take inflation longer to rise back to the ECB’s target of almost 2 percent, there is no need for now to restart bond purchases, commonly known as quantitative easing.
· Industrial production in Germany continued its run of declines in January, the official data showed on Monday, adding to the signs pointing to slowdown in Europe's largest economy.
Output fell 0.8% m/m, federal statistics authority Destatis said in figures adjusted for seasonal and calendar effects - well short of a 0.4% rebound expected and -0.4% last.
On an annualized basis, the German industrial production arrived at -3.3% versus -3.9% booked in December.
· British Prime Minister Theresa May has been urged by senior Conservative lawmakers to pull Tuesday’s vote in parliament on her Brexit deal because she is likely to be badly defeated, The Times newspaper reported.
· India will hold a general election in seven stages starting on April 11, the election commission said on Sunday, in what will be the world’s biggest democratic exercise with Prime Minister Narendra Modi likely to benefit from tensions with Pakistan.
· Italy will join China’s giant “Belt and Road” initiative only after satisfying itself that U.S. and European Union concerns over the infrastructure plan have no basis, Industry Junior Minister Michele Geraci was quoted as saying on Monday.
Geraci’s comments came after a spokesman for the White House’s group of national security advisers, Garrett Marquis, on Saturday called the Chinese venture a “vanity project” that Italy should steer clear of.
· Oil prices rose on Monday, lifted by comments from Saudi oil minister Khalid al-Falih that an end to OPEC-led supply cuts was unlikely before June and a report showing a fall U.S. drilling activity.
U.S. West Texas Intermediate (WTI) crude oil futures were at $56.36 per barrel at 0738 GMT GMT, up 30 cents, or 0.5 percent from their last close.
Brent crude futures were at $65.02 per barrel, up 28 cents, or 0.4 percent.
Reference: Reuters, CNBC
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