So the Dollar failed to hold on to $1.052 levels against the EUR off the back of the release of January’s inflation and retail sales figures on Wednesday, with appetite for the Dollar waning through to the U.S close and the story has yet to change through the Asian session and early part of the European session, the Dollar down 0.32% against the EUR at the time of the report, with appetite for the Dollar seemingly lost in the West, as the EUR looks on track to make a 2nd consecutive day of gains.
The slide in the Dollar is somewhat perplexing when viewing the data out of the U.S on Wednesday, solid retail sales figures and an uptick in inflation raising the prospects of a March rate hike by the FED.
FOMC members should also have been able to find bids for the Dollar, with Rosengren and Harker talking of at least 3 rate hikes for the year, Rosengren actually suggesting that more would be needed.
While the Dollar had found its legs on Tuesday, Yellen’s testimony taken as a positive, Wednesday’s testimony ultimately weighed on the Dollar.
It’s unusual for the FED Chair to flip flop on sentiment towards the U.S economy, but Yellen’s comment on the U.S economy’s performance being quite disappointing during Wednesday’s testimony weighed heavily and investors jumped on the comments as a reason for rates to remain on hold next month, despite FED Fund Futures pricing in a 46% probability of a rate hike in the March FOMC, rising from Tuesday’s 34%.
With Yellen surprising the markets, the day ahead is another busy one on the economic calendar. The markets will get a sense of where the ECB actually sits on its outlook on monetary policy with this afternoon’s release of the meeting minutes. Draghi was particularly dovish through the ECB press conference, so the minutes will need to be as dovish without any dissent for the EUR to hold at current levels ahead of the today’s stats out of the U.S.
Stats out of the U.S this afternoon include January’s Building permit and housing start figures, together with the weekly jobless claims numbers and February’s Philly FED Manufacturing Index data. Positive numbers will provide some upside for the Dollar, though the question remains over why there was such a slide in the Dollar, Yellen’s view on the U.S economy likely to be common amongst most in the markets, the rest of the FED Chair’s commentary actually quite positive.
It may be too soon for Trump to roll out some positive news for the Dollar, following last week’s announcement of imminent tax reforms, but for the Dollar to regain its footing, Trump will need to come to the rescue and as we are all too aware, the last thing that the U.S administration wants is a stronger Dollar.
While the Dollar Spot Index sits down 0.4% at 100.78 at the time of the report, we expect the Dollar to make some form for a recovery through the European and U.S sessions, the Dollar certainly oversold on Yellen’s comment, which was certainly not a reflection of the FED Chair’s tone through the remainder of her testimony.
Economic data out of the U.S will likely play a supporting role, the markets having brushed aside the hawkish commentary of Yellen’s foot soldiers on Wednesday evening, though the figures are unlikely to have a material impact on the probability of a March rate hike, barring initial jobless claims surging above 300k, the chances of which are slim at best.