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US dollar edges higher ahead of key inflation data

 

Tuesday, February 13, 2024

Today’s headlines

What’s happening: The US dollar rose on Monday as investors monitored the Federal Reserve’s monetary policy outlook.

What happened: The US Fed is widely expected to keep interest rates unchanged at its meeting in March, following strong jobs data for January.

It being a holiday in most major Asian markets kept the greenback mostly range bound on Monday.

Why it matters: Earlier this month, the US released better-than-expected jobs data for January, which fuelled prospects of the Fed keeping interest rates unchanged in March. Speculations are not for the first rate cut in May.

Strong data from the US also raised the probability of the European Central Bank pushing back their rate cut decision, despite weak economic reports from the EU.

Data released last week showed US monthly consumer prices rising lower than earlier projected for December. The rise in the CPI (consumer price index) was revised to 0.2% in December, from 0.3% reported last month.

Many major markets in Asia, including the Nikkei and Hang Seng, remained closed for the Lunar New Year holiday. Markets in China will remain shut for the week.

Data released on Monday showed the US government budget deficit narrowing to $22 billion in January, from $39 billion in the year-ago month. The figure was higher, however, than market estimates of $21 billion.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.1% to 104.17 on Monday.

The EUR/USD forex pair fell around 0.1% to 1.0773, as investors await the release of data on the Eurozone’s economic growth for the fourth quarter, scheduled for release on Wednesday.

The GBP/USD pair fell around 0.1% to 1.2627, ahead of data on employment, inflation and GDP, due to be released this week.

What to watch: Markets will monitor US CPI data, due to be released today. The annual inflation rate in the US, which accelerated to 3.4% in December, is expected to ease to 2.9% in January. Analysts expect annual core consumer price inflation rate to slow to 3.7% in January, from 3.9% in December.

Data on US producer price inflation and retail sales, scheduled for release on Wednesday and Thursday, respectively, will also remain in focus. Retail sales in the US, which grew 0.6% in December, are expected to decline 0.1% in January. Analysts expect producer prices in the US to fall by 0.1% in December.

The markets today

European stocks will be in focus today ahead of the ZEW economic sentiment index

Context: European stock markets gained on Monday as investors continued assessing corporate earnings reports and the ECB’s interest rate outlook.

Details: The regional Stoxx index has delivered a muted performance so far in February, despite big moves by individual shares following the release of quarterly results.

With major central banks assessing the state of economic growth and inflation, traders will watch consumer-related shares to know more about the strength of economies.

Shares of Just Eat gained around 8.8% on Monday, after Deutsche Bank raised its price target on the food delivery firm. Saab’s shares climbed around 5.5%, after the company reported upbeat fourth-quarter results on Friday.

The STOXX Europe 600 Index gained 0.54% to close at 487.46 on Monday, with almost all sectors closing in the positive zone. Retail stocks were among the top performers, adding around 1.4% on Monday.

London’s FTSE 100 gained 0.01% to close at 7,573.69, while Germany’s DAX 30 and France’s CAC 40 added 0.65% and 0.55%, respectively.

What to watch: Investors await the release of data on ZEW indicator of economic sentiment from the Eurozone today. The ZEW Indicator of Economic Sentiment for the Eurozone, which fell by 0.3 points to 22.7 in January, is expected to decline further to a reading of 20.1 in February. Analysts expect the ZEW Indicator of economic sentiment for Germany to increase to 17.5 in February, from 15.2 in January.

Other Markets: US trading indices closed mixed on Monday, with the S&P 500 and Nasdaq 100 down by 0.09% and 0.44%, respectively, and the Dow Jones index up by 0.33%.

The news shaping the markets

Russia imposed sanctions on 18 British citizens, including historians, officials and academics, for attempting to demonise the country. The news sent the RUB/USD forex pair lower this morning.


Australia’s NAB business confidence index rose to 1 in January, from 0 in the earlier month. However, the latest reading remained below the long-run average and exerted pressure on the AUD/USD forex pair.


Japan’s producer prices increased by 0.2% year-over-year in January, above market estimates of a 0.1% rise, which sent the JPY/USD pair lower in forex trading this morning.


Indonesia’s consumer confidence rose to 125.0 in January, from 123.8 in the prior month. However, income expectations for the next six months fell by 4.9 points to 134.8, which exerted pressure on the IDR/USD forex pair.


India’s annual retail inflation slowed to 5.1% in January, from 5.69% in the prior month, matching market estimates. Despite this, the INR/USD pair fell slightly in forex trading this morning.

What else to watch today

Japan’s machine tool orders, France’s unemployment rate, Turkey’s current account, retail sales and car production, UK’s unemployment rate, number of employed individuals and claimant count change, South Africa’s gold production and mining production, Germany’s ZEW economic sentiment index, ZEW current conditions and current account, US NFIB small business optimism index and API crude oil stock change, as well as Indonesia’s total car sales.


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