16/02/2024
US dollar update
US dollar summary
In the early months of 2024, the US economy displayed a complex yet resilient picture, highlighted by diverse economic indicators. January saw the Producer Price Index (PPI) for final demand in the US increase by 0.9% year-on-year, a slight deceleration from December’s 1% rise but still surpassing expectations of 0.6%. The Core PPI, excluding food and energy, rose by 2% annually and 0.5% monthly, indicating a slight uptick in underlying inflation pressures compared to the previous month’s 0.1% decline. Consumer Price Index (CPI) data for January revealed inflation exceeding market forecasts, pushing the US dollar to a three-month high. The CPI rose by 0.3% on a monthly basis, with a notable 3.1% increase on a yearly basis.
However, the retail sector faced challenges, as January’s retail sales unexpectedly fell by 0.8%, starkly contrasting to December’s 0.4% increase and below the anticipated 0.1% decrease. Despite this, the employment sector remained strong, with initial jobless claims dropping to 212,000 for the week ending February 10, signaling robustness in the labor market. This strength is further supported by positive manufacturing data from the Federal Reserve’s Philadelphia and New York districts.
Financial markets reacted to these mixed signals, with the US Dollar Index experiencing a weekly uptrend, currently being at 104.40. The benchmark 10-year US Treasury bond yield saw a rise above 4.3%, reflecting the market’s nuanced response to domestic economic indicators and their implications for the Federal Reserve’s policy outlook.
In summary, the US economy in early 2024 demonstrated resilience amidst inflationary pressures and a retail slump, with the labor market and manufacturing sectors providing a solid foundation. These developments are crucial for financial analysts and investors as they navigate the implications for the US dollar and broader economic outlook.
Market Views & Opinions
Scotiabank in today’s market commentary, says regarding EURUSD that “EUR gains from the mid-week low are holding up and leave spot trading close to levels which could point to more sustained gains in the short run. A move above 1.0805/10, to better Monday’s high would give the EUR a bit more lift, I think. Also, a close above 1.0786 (Monday’s opening level) on the week would be a bullish cue as well. Short-term trend momentum favors a little more EUR strength in the short run. Support is 1.0755 and 1.0690/00.”
ING in today’s G10 FX talking says:
- Nobody said the disinflation path to 2% was going to be an easy one. That is certainly the case in the US, where stronger jobs data and now higher January CPI figures have created a large speed bump. The January PCE data on 29 February is now the next big focus. Expect to hear more from the Federal Reserve about the ‘bumpy’ path to 2% inflation – but we still think this is the true direction of travel.
- The backup in US rates has naturally lifted the dollar. This may not have too much further to run in that it will be hard to see the market pricing less than 75bp of Fed cuts this year.
- EUR/USD downside should be relatively limited from here if the above is true. And we think the ECB only starts cutting in June.
IMPORTANT DISCLAIMER
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.
