U.S. dollar highlights:
USD firm but vulnerable after the latest Federal Open Market Committee meeting minutes from last month. Policymakers agreed the current monetary policy stance will remain “appropriate for a time” and expect economic growth to “continue at a moderate pace”. Trade tensions with China have eased, Brexit risks have reduced, and global growth has stabilized. However, the Fed will continue monitoring the coronavirus threat. Interest rates are expected to remain on hold this year (after three rate cuts in 2019). USD maintained strength due to safe-haven status, even after China reported the pace of the epidemic has slowed outside the Hubei province and will keep taking measures to boost the economy. Producer Prices for January increased 0.5% monthly and 2.1% yearly.
Canadian dollar highlights:
CAD gaining strength on higher oil prices but remains defensive due to global growth concerns and rail blockades. Prime Minister Trudeau continues talks with the Wet’suwet’en nation after rail traffic protests are stopping traffic across Canada. Meanwhile, consumer prices for January increased 2.4% yearly (versus 2.3% expected). Markets were neutral after the positive inflation report because CAD still remains vulnerable to safe-haven currencies (USD, JPY, CHF). Markets have reduced the chances of a 25bps rate cut to 15% next month.
EUR weaker and continues dropping, despite improved market sentiment. Eurozone account surplus increased to €51.2 billion in December (the largest on record). Meanwhile, construction output shrank by 3.1% monthly and 3.7% yearly (biggest drop since January 2017). Germany’s construction dropped 4.2%. All eyes on the Monetary Policy meeting minutes today and the January inflation report available tomorrow. The coronavirus impact and trade uncertainty are weighing on EUR.
British pound highlights:
GBP weaker as trade negotiations with the European Commission continue. Inflation for last month rose 1.8% on higher energy prices (versus 1.6% expected and previously 1.3% in December). Core inflation also increased 1.6% (from 1.4%). The odds of a rate cut from the Bank of England are now 35% next month as policymakers will be patient with improving growth and more fiscal stimulus coming. Retail Sales for January expecting 0.9% increase monthly today (from 0.7% previously).