PM May Calms the Brits; Dovish Draghi Shakes Up the Euro

Last week was relatively quiet when confirmed to the first two. This was probably because economic data was limited to a handful of U.S. reports, a speech from British Prime Minster Theresa May, and a European Central Bank meeting and ahead of Friday’s inauguration of Donald Trump as President of the United States.

U.S. Dollar

March U.S. Dollar Index futures closed the week at 100.690, down 0.4980 or 0.49%. It was primarily influenced by a few U.S. reports before Friday’s inauguration ceremony. On January 18, it was reported that U.S. Consumer Inflation rose 0.3% month-on-month. This was important because on an annualized basis inflation was 2.1%. This was the first time it was above the Fed’s mandated 2.0% level for the first time since the summer of 2014.
Building permits came in as expected at 1.21 million units. The Philly Fed Manufacturing Index was 23.6, well above the 16.3 estimate and the 21.5 prior month. Weekly Unemployment Claims continued to hover near a 40-year low at 234K.
Traders received a mixed message from the economic data, Fed Chair Janet Yellen and then President-elect Donald Trump. The solid CPI data raised the odds of a sooner-than-expected rate hike. In her first of two speeches during the week, Yellen said she supports the idea of multiple rate hikes in 2017. The very next day she said the Fed is likely to continue to take a cautious approach to raising rates. Trump broke the dollar when he told the Wall Street Journal that the U.S. Dollar is too strong.

British Pound

The British Pound fell more than 1% against the dollar on Monday, January 16 after the contents of Prime Minister Theresa May’s upcoming speech leaked last week-end. By the end of the week, however, the GBP/USD was trading at 1.2372, up 0.018 or +1.47%.
May seemed to calm the Brits who since last June when they voted to leave the European Union, have been consumed with whether Brexit should be “hard” or “soft”. May all but ended that debate by saying Brexit means a clean and honest break from the EU.

Euro

The Euro posted a two-sided move last week, recovering from dovish comments from ECB President Mario Draghi. He said in his post-ECB meeting on January 19 that underlying inflationary pressures in the European region remain subdued and that there is no convincing evidence of an upward trend in consumer prices.
The EUR/USD finished the week at 1.0699, up 0.006 or +0.56%.