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  • richard evans

US data continues to weigh on USD, Yen rate rise talk continues

Good morning

 

It was another day of losses for the US dollar yesterday, led once again by slightly weaker US data, this time in the form of ADP and JOLTS jobs data.  Feds Powell was, if anything, less dovish than the data, certainly to begin with.  He made it clear that Fed were in no rush to cut rates and would prefer to see more data before they do so. 

 

However he then added that the Fed were not necessarily looking for lower inflation numbers, but no worse than current levels.  He seems to be saying that if inflation and other incoming data stay pretty much where they are, the Fed will be in a position to cut rates.  June still seems to be the most likely in terms of timing.  Kashkari remains less dovish, saying he sees two rates cuts at most this year, and possibly only one, compared to general Fed and market thinking that we’ll see three 25bps cuts.

 

GBPUSD reached 1.2760, while EURUSD peaked at 1.0915, each now just a few points off those highs, with GBPEUR just a few points lower at 1.1695.  It was a pleasure and something of a relief to see GBP holding up after the budget which offered very little in the way of surprises.  Always a bit worrying when tax take and debt to GDP rations are based primarily on made up numbers, even if they are made up by undoubtedly clever people.   We now look forward to hearing plans from the opposition in the coming months to see what they will promise.

 

Canada kept rates unchanged as expected, a mildly hawkish tone from BoC together with a generally weaker US dollar sent USDCAD down from its highs around 1.3600 to around 100 points lower at 1.3500, currently 1.3510.

 

China trade surplus came in at a whopping $125bn, up from a ‘mere’ $75bn last month.  With numbers like that China will potentially have the leverage to ride out the current economic difficulties they are facing.  Aussie trade numbers also showed a surplus of AUD 11bn, a touch below expectations but it’s still a decent number.  AUD slightly higher across the board.

 

USDJPY has seen another leg lower overnight, again the softer US dollar partly to blame but the yen strength really coming after some earnings data plus some hawkish comments from BoJs Nakagawa regarding progress on inflation.  We’ve also had some interesting comments from FinMin Suzuki who talked about intervention, surprising given the dip we’ve seen in USDJPY.  We have seen some pretty big banks suggesting a move away from negative rates could be seen as early as the meeting on 19th March.  I’m going to have to start looking at downside USDJPY or GBPJPY plays just in case, certainly if we get a bit of a bounce.  For the record the low in USDJPY so far has been 147.90, GBPJPY 188.35.

 

Elsewhere, Gold is trading higher, again led by US rate expectations together with geopolitical risks, we’ve seen a high so far of $2161, while Bitcoin upside seemed capped yesterday around $67,500, with support around $66,600.  Currently $66,900, it is unlikely to stay in that range for too long I’d imagine.  

Its another busy calendar today, more US jobs data comes in the form of challenger job cuts and initial jobless claims, any signs of weakness could add to USD’s woes ahead of nonfarms tomorrow, while Powell takes the floor again in his second testimony which is usually highly similar to the previous day.  Ferds mester also speaks later, she’s known to be on the hawkish side.

 

We will also have the ECB rate announcement, rates are expected to be kept unchanged, although there is a tiny chance of a rate cut.  We’ll have updated forecasts which are expected to see lower growth and lower inflation.  Otherwise, the press conference is likely to be key, where we hope to hear Lagarde offer some details as to the potential timing and pace of rate cuts.  For now, as with Fed, June seems to be favoured.

 

I’m out of the office today and a bit of tomorrow meeting clients and potential clients alike, almost certainly the greatest part of the job.  On the subject of new clients, we had something of a record yesterday, managing to get a new client account open in less than one day for a chap who was about to sign on the dotted line for an overseas property and needed to send some Euros out as a deposit. 

 

While much of our work is at the larger corporate end, we are equally happy to service any client who can benefit from our help.  In this instance speed was of the essence, and I’m pleased to say we delivered above expectations.  OK, we know it can’t always work this way but it is fantastic when it does.  I just love it when a plan comes together.

 

In sport, we’ve got the fifth and final test between England and India to ‘enjoy’.  England have already lost the series but were looking decent at 100-2, but after a typical collapse they are 190-8 so I’m not sure there will be much to enjoy.  Still, it might be worth turning on just to see the amazing setting of the pitch in Dharamsala, at the foot of the Himalayas with snow-capped mountains forming a stunning background. 

 

At the weekend we’ll see more six nations action although with England taking on Ireland it might be one to miss.  Even for the most confident England fan, odds of 4-1 don’t look good value to me.  And of course, we have premier league football.  A couple of really interesting matches including Spurs/Aston Villa and Liverpool/Man City on Sunday.  We’ve also got another F1 race to watch.  I know I should be careful what I wish for but I’m sort of hoping that rain comes so I’ll have a decent excuse to leave the garden and settle down to watch the sport.

 

Still, the weekend isn’t here yet.  I’ve added Fridays calendar below as I won’t be around to send tomorrow morning.  I’ll miss the EU GDP tomorrow but should be back at my desk in time for the nonfarms, traffic permitting.   

 

 

-  12.30 US challenger job cuts

-  13.15 ECB rate announcement

-  13.30 US initial jobless claims

-  13.45 ECB press conference

-  15.00 Feds Powell speaks

-  16.30 Feds Mester speaks

-  23.50 Japan GDP

 

Friday

 

-  07.00 German industrial production

-  10.00 EU GDP, employment change

-  12.00 Feds Williams speaks

-  13.30 US nonfarm payrolls

-  13.30 CAD unemployment

 

 

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