U.S. dollar highlights:
USD weaker and defensive as risk-appetite returned after Federal Reserve Chairman Powell’s dovish comments. Global stocks also improved due to the coronavirus cases slowing. Markets are encouraged that the outbreak will be contained and not affect the world economy. Powell said the Fed is closely monitoring the impact of the virus on China and trade uncertainties have diminished. After cutting interest rates three times in 2019, the Fed is well positioned, and the current monetary policy remains appropriate. The Fed policy has been on hold since October 31 and markets expect no changes this year. All eyes on the consumer prices report for January available tomorrow and retail sales on Friday.
Canadian dollar highlights:
CAD stronger as oil prices increase after virus fears decreased. However, CAD is still vulnerable to geopolitical events and any strength may be temporary until markets are convinced China can contain the epidemic. Meanwhile, CAD is holding support from last week’s positive jobs report. Currently a 10% chance the Bank of Canada will increase interest rates next month. Market sentiment will continue to determine CAD direction. All eyes on Bank of Canada Governor Stephen Poloz today.
EUR weaker and soft after central bank President Christine Lagarde spoke to parliament. Lagarde wants governments to expand fiscal policy to boost the economy. Meanwhile, Germany’s Finance Minister Olaf Scholz confirmed the Eurozone’s biggest economy will have a balanced budget in 2020 with no new debt. The risk remains from President Trump if he follows through with tariff threats on German cars. EUR remains under pressure to drop further if the Quantitative Easing program is re-started and Lagarde cuts rates next month. All eyes on the GDP Growth rate for Q4 available on Friday.
British pound highlights:
GBP stable after GDP growth in Q4 was 1.1% expansion yearly and 2019 growth was 1.4% (both as expected). The economy avoided a contraction in Q4, and this puts more pressure on the central bank to cut rates. There was no growth for the first three quarters of 2019 and the manufacturing sector contracted again; meanwhile, the service sector has slowed since December. All eyes on Bank of England Governor Mark Carney.