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USD spikes to 1-month highs on economic data

 

Thursday, January 18, 2024

Today’s headlines

What’s happening: The US dollar moved higher on Wednesday, as investors assessed the latest economic reports.

What happened: The US dollar index hit a one-month high on Wednesday after a strong retail sales report raised speculations of the Federal Reserve not being in any hurry to slash interest rates.

However, one of the major currencies recorded gains versus the US dollar during Wednesday’s session.

Why it matters: The US Commerce Department’s Census Bureau said retail sales grew by 0.6% in December, following a 0.3% rise in the prior month. The figure was also higher than market expectations of 0.4% growth.

Industrial production rose by 0.1% in December, beating market estimates of no growth, while the NAHB/Wells Fargo Housing Market Index climbed to 44 in January, from 37 in December.

The US dollar climbed to its strongest level versus the Japanese yen since November 28, while the USD/CNY forex pair reached a two-month high level. The yuan was shorted after China reported disappointing data on Wednesday. China’s economic growth decelerated to 1.0% in the fourth quarter, from 1.5% in the prior quarter. The country’s retail sales rose by 7.4% year-over-year in December, missing market expectations of 8.0% growth.

The British pound gained versus the US dollar, despite strength in the greenback. The GBP/USD forex pair notched its first gain after three sessions of declines.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.2% to reach 103.45 on Wednesday, after hitting 103.69 during the session, its strongest level since December 13.

The greenback had also surged around 0.7% on Tuesday, recording its biggest single-day percentage gain since January 3, following comments from Fed’s Christopher Waller, who said that the inflation rate was within “striking distance” of the central bank’s 2% target, although some more information is needed before declaring victory.

What to watch: Investors await the release of economic reports on jobless claims, housing starts, building permits and the Philadelphia Fed Manufacturing Index from the US today. The number of people filing for jobless benefits, which declined by 1,000 to 202,000 in the week ending January 6, is expected to increase to 207,000 in the latest week.

Housing starts, which surged 14.8% to an annualised rate of 1.56 million in November, are likely to decline by 8.3% in December, while building permits are projected to increase 0.9%. Analysts expect the Philadelphia Fed Manufacturing Index to improve to -5 in January, from -10.5 in December.

The markets today

European stocks will be in focus today ahead of a basket of major economic reports

Context: European stocks closed lower on Wednesday, following the release of inflation data.

Details: Data released on Wednesday showed the Eurozone’s inflation rate coming in at 2.9% in December, compared to an over two-year low of 2.4% recorded in November. This also represented the first increase in inflation since April. On a monthly basis, consumer prices rose by 0.2% in December, compared to a 0.6% decline in November.

The data releases fuelled speculations of the European Central Bank keeping interest rates higher for longer. This was also triggered by ECB President Christine Lagarde’s interview at Davos, at which she signalled the probability of rate cuts in the summer but emphasised that caution is required amid persistent uncertainties.

The STOXX Europe 600 Index fell 1.13% to close at 467.71 on Wednesday, with all sectors closing in the negative zone. Mining stocks were the worst performers, declining more than 2%. The STOXX 50 Index lost 0.98% to close at 4,403.08, recording its weakest level since November 30.

UK’s FTSE 100 declined by 1.48% to settle at 7,446.29 on Wednesday, after inflation in the UK unexpectedly rose to 4% year-over-year in December, from 3.9% in November, topping market estimates of 3.8%. The Bank of England is scheduled to hold its monetary policy meeting on February 1, after announcing several rate hikes over the past two years to combat soaring inflation.

Germany’s DAX 40 fell 0.84% to 16,431.69, while France’s CAC 40 lost 1.07% to settle at 7,318.69 on Wednesday.

What to watch: Investors await the release of economic data on passenger car registrations, current account, and construction output from the Eurozone today. Passenger car registrations in the EU, which surged 6.7% year-over-year to 855,600 units in November, are expected to increase by 4% in December.

The Eurozone is expected to record a current account surplus of €39.0 billion in November, compared to a €30.1 billion surplus in October. Analysts expect construction output in the Eurozone to decline by 1.7% year-over-year in November, following a 0.7% contraction in October.

Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.25%, 0.56% and 0.56%, respectively.

The news shaping the markets

UK Foreign Secretary David Cameron appealed for US lawmakers to approve fresh aid to Ukraine. The news sent the RUB/USD pair lower in forex trading this morning.


Australia’s consumer inflation expectations came in unchanged at 4.5% in January. This being the lowest level since January 2022 lent support to the AUD/USD forex pair.


UK’s RICS Residential Market Survey house price balance improved to -30 in December, from -41 in the prior month, which sent the GBP/USD pair higher in forex trading this morning.


New Zealand’s annual food inflation slowed to 4.8% in December, from 6.3% in the prior month, lending support to the NZD/USD forex pair.


Colombia’s manufacturing production fell by 6.4% year-over-year in November, after a 5.9% decline in the prior month, which sent the COP/USD pair lower in forex trading this morning.

What else to watch today

Spain’s balance of trade, South Africa’s gold production, mining production and value of recorded building plans passed, Italy’s current account, Turkey’s gross foreign exchange reserves, Brazil IBC-Br economic activity index, European Central Bank’s monetary policy meeting accounts, Russia’s balance of trade, US natural gas stocks change, crude oil inventories, gasoline stocks change and distillate inventories, China’s foreign direct investment, as well as Argentina’s balance of trade.


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