Global Themes

A fragile U.S. dollar Friday was on track to snap a two-week winning streak on tempered expectations for higher American interest rates and economy-boosting stimulus from Washington. The dollar slipped to one-week lows on a trade-weighted basis and to its weakest in two against the U.K. pound. While this week’s release of the intimate details of the last Federal Reserve meeting hinted at a rate hike ‘fairly soon,’ the mixed tone of the minutes seemed more consistent with a rate hike over the first half of the year rather than the first quarter. A contributing factor to the dollar’s clammy hand on gains were remarks from America’s new Treasury secretary, Steven Mnuchin, who signaled that a much-anticipated tax overhaul would likely arrive around the latter part of the summer which disappointed some dollar bulls. U.S. data today on consumer sentiment and new home sales should help determine whether the buck logs its first down week in three.


While stronger and above 1.06 on Friday, EURUSD was on pace to breakeven over the week against its U.S. counterpart as tempered expectations for a near-term Fed rate hike largely offset the cloud of political uncertainty that continues to hang over the continent. Thursday of next week looms crucially for the euro when the 19-country bloc releases top tier data on inflation and unemployment. Nevertheless, political forces remain in the driver’s seat for the euro ahead upcoming elections the Netherlands, France and Germany.


Sterling steadied after clocking two-week highs, though its more than 1 percent appreciation over the week had GBPUSD on pace for one of its best weeks of the year. The shifting of the spotlight of political risk from Britain onto the U.S. and euro zone worked in the pound’s favor, along with the U.K. economy turning in a resilient week. Fears of rising inflation biting into retail spending diminished somewhat after data Thursday showed consumers went on a shopping spree in February. Next week brings big ticket U.K. numbers on monthly manufacturing and services growth on Wednesday and Friday, respectively.


Canada’s dollar jumped to one-week highs after north of the border inflation surged more than expected, potentially sapping scope for the Bank of Canada next week to sound dovish on its outlook for monetary policy. Monthly inflation was up nearly 1 percent while the annual number topped the BOC’s 2 percent goal. Underlying or core inflation rose a tick to 1.7 percent annually. Canada’s central bank issues its second policy decision of the year on March 1 at 10 a.m. ET at which it is not expected to alter its 0.50 percent base rate given the wavering outlook for the Canadian economy.


The dollar sputtered toward the weekend but before chalking up a loss on the week, which would mark its first in three, it will look for a catalyst in U.S. data on the all-important consumer and housing. The University of Michigan is forecast to report consumer optimism cooled to 96.0 from January’s 13-year high of 98.5. New home sales are forecast to rise by more than 6 percent in January. Outcomes consistent with U.S. fundamentals in sufficient enough shape to weather an imminent rate hike would bode better for the buck. The dollar next week will look for drivers in President Trump’s State of the Union address, which could shed light on the outlook for its pro-growth agenda, and data Wednesday on U.S. consumer income, spending and inflation – data that could potentially sway the timetable for a Fed rate hike.

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