Eurozone Inflation and U.S GDP to drive the EUR and USD

Earlier in the Day:

Economic data through the Asian session this morning was on the heavier side, with key stats released including January retail sales and industrial production out of Japan, business confidence numbers out of New Zealand, February private sector PMI numbers out of China and Australia’s private sector credit figures for January.

For the Yen, industrial production fell by 6.6% in January, according to prelim figures, which was greater than a forecasted 4.1% decline, more than reversing December’s 2.9% rise, whilst retail sales increased by 1.6%, falling short of a forecasted 2.6% rise, following December’s 3.6% increase in sales.

The Japanese Yen moved from ¥107.408 to ¥107.486 against the Dollar upon release of the figures, with consumer spending continuing to be on the weaker side and the larger than expected slide in production figures an issue at the turn of the year, with the economy heavily reliant upon exports.

New Zealand’s ANX Business Confidence Index improved from -37.8 to -19 in February, the index reflecting a net 19% of businesses that are pessimistic about the year ahead.

In spite of the negative headline number, all 5 sectors saw improvement, with retail companies the closest to a positive outlook at -4.

Firm’s views of their own activity, which is considered to have a stronger correlation with GDP growth improved from +16 to +20, though this continues to sit well below a historical average +28.

The Kiwi Dollar moved from $0.72354 to $0.72235 upon release of the figures, which were an improvement but far from impressive. At the time of writing, the Kiwi Dollar was down 0.08% to $0.7229.

Out of Australia, private sector credit rose by 0.3% in January, falling short of a forecasted 0.4% increase, though the figures had a muted impact on the Aussie Dollar, which moved from $0.77941 to $0.77957 upon release of the data.

With the large majority of the stats on the negative side in the early part of the session, China’s private sector PMI figures were perhaps the biggest blow of the day, with the manufacturing PMI falling from 51.3 to 50.3 and the non-manufacturing PMI falling from 55.3 to 54.4 in February.

The slide in the manufacturing sector was the largest monthly fall since 2012, with the PMI sitting at a 20-month low, though some of the softer numbers will likely be as a result of the timing of Chinese New Year.

In spite of the weaker numbers, the Aussie Dollar moved from $0.77892 to $0.77928 in response to the PMI numbers, with the Aussie Dollar easing back to $0.7789 at the time of writing, flat for the day.

It was a different story in the equity markets this morning, with FED Chair Powell’s hawkish testimony and disappointing economic data weighing on risk appetite.

At the time of writing, the Nikkei and ASX200 were down by 0.86% and 0.67% respectively, while the Hang Seng and CSI300 felt the full force of the weaker PMI numbers, down 1.40% and 1.1% respectively.

The slide in the equity markets and the disappointing data saw the Yen reverse early losses, with the Yen up 0.19% to ¥107.13 at the time of writing.

The Day Ahead:

For the EUR, it’s a busy morning ahead, with economic data scheduled for release out of the Eurozone including German consumer sentiment and unemployment figures, prelim February inflation figures out of France, Italy and the Eurozone, together with French 4^th quarter GDP and January consumer spending numbers.

Following some disappointing numbers released out of China this morning, the markets will be hoping for some good news, with focus likely to be on the inflation figures, France’s GDP numbers and Germany’s unemployment data. Based on forecasts, softer Eurozone inflation figures would ultimately be the negative for the EUR, which was down 0.09% to $1.2222 at the time of writing.

For the Pound, it’s another quiet day, with the markets needing to wait until tomorrow’s manufacturing PMI figures for any clues on the direction of the UK economy midway through the 1^st quarter.

At the time of writing, the Pound was down 0.07% to $1.3899, with Dollar strength ultimately pinning the Pound back this morning.

Across the Pond, it’s a relatively quiet day on the economic calendar, with stats scheduled for release out of the U.S including 2^nd estimate, 4^th quarter GDP numbers, January pending home sales and Chicago’s February PMI.

Following the bounce in the Dollar on Tuesday, in response to FED Chair Powell’s testimony, any revisions to 4^th quarter GDP numbers will influence the Dollar, with Chicago’s PMI also a factor to consider, with economic growth in the U.S the driving force behind the recent uptick in inflation and expectations of a 4^th rate hike this year. Soft numbers could temper the hawkish sentiment, though much will depend on tomorrow’s inflation figures.

At the time of writing, the Dollar Spot Index was up 0.06% to 90.410, the Dollar holding on to Tuesday’s gains through the session, with the Dollar now down just 1.86% year-to-date.