Article Highlights

  • Empire State manufacturing index down from 9.0 to 6.5
  • FOMC member Dudley: Economy isn’t growing much faster than its long-term pace
  • Dudley: “Inflation is simply not a problem”
  • FOMC member Brainard: Fiscal policy changes pose uncertainty, could push USD higher
  • Brainard: International risks tilted to the downside, low inflation from Japan and Europe
  • New Zealand GDT auction yielded 0.6% increase in dairy prices
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The Greenback ended lower against its peers on weak data, mixed Fed rhetoric, and market jitters leading up to the Donald’s inauguration. U.S. equities closed in the red as well.

Major Events:

Speeches by Dudley and Brainard – FOMC voting members William Dudley and Lael Brainard took the stage to deliver their thoughts on the U.S. economy and monetary policy, but market watchers seemed to put more weight on Dudley’s not-so-hawkish remarks.

For the New York Fed President, the economy isn’t growing much faster than its sustainable long-term pace. In other words, the U.S. central bank doesn’t need to rush to cool the economy down, especially since “pressures on labor resources have been increasing, but quite slowly” and “inflation is simply not a problem.” He explained that the dollar’s appreciation would pull import price levels down and discourage local producers from raising prices.

On the other hand, FOMC member Brainard was more upbeat since she echoed some of her fellow Fed officials’ remarks on how fiscal policy could bring upside risks. She even noted that the U.S. central bank might hike rates faster if fiscal stimulus shrinks the economic slack quickly. However, she did warn that risks from abroad are tilted to the downside and that there are low inflation pressures stemming from Japan and Europe.

After-party from May’s testimony – Pound pairs continued their advance in the first few hours of the U.S. session, boosted by stronger than expected U.K. CPI data and Prime Minister Theresa May’s speech in the previous trading session.

In her speech, which was widely expected to emphasize the possibility of a “hard Brexit,” May clarified that the U.K. has “no desire to become more distant to you [The E.U.], our friends and neighbors” but instead seeks “a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU.” 

Pound bulls also cheered the fact that May would allow Parliament to vote on the final Brexit deal, which suggests that lawmakers can still have a chance to give their two cents (or two pence) before the divorce is made official.

Major Market Movers:

GBP – The pound extended its gains at the start of the session before consolidating against its counterparts.

GBP/USD continued to climb to a high of 1.2416 before retreating below the 1.2400 mark, GBP/JPY popped up to 140.14 then traded sideways, EUR/GBP slipped to a low of .8632, and GBP/AUD zoomed up to a high of 1.6431.

Watch Out For:

  • 11:30 pm GMT: Australia Westpac consumer sentiment index (-3.9% previous)

See also:

London Session Recap

Asian Session Recap

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