Another mixed week for the U.S. dollar with broad risk sentiment on the rise against net weak U.S. data, counter currency moves and geopolitical headlines.
United States Headlines and Economic Data
- Homebuilder sentiment rises as interest rates stay in check
- Trump says March 1 trade deadline is not a ‘magical date’
- U.S. wants pledge for stable Chinese yuan
- Fed’s Mester says higher rates likely needed later this year
- U.S. mortgage requests rise as loan rates hold near 10-month low: MBA
- Fed expects to halt balance sheet reduction by the end of the year, minutes say
- Philly Fed manufacturing index slumps into negative territory in February for the first time in nearly three years
- U.S. core capital goods orders unexpectedly fall in December
- Latest Unemployment Benefits Claims Hint Labor Market Is Regaining Strength
- Service providers underpin quickest rise in private sector output since June 2018 – Markit
- U.S., China resume trade talks to thrash out structural agreements
- Fed’s Bullard: Rate hikes, balance sheet reduction ‘coming to an end’
- Fed’s John Williams Warns of Risks of Low Inflation Expectations
Major Market Drivers for the U.S. Dollar
Price action in USD pairs was really wonky this week, and could probably be best summarized as a lot choppiness and sideways price action, and counter currency flows sprinkled in for some directional moves in select pairs.
Global risk sentiment was positive this week thanks to growing optimism on the U.S.-China trade negotiation story (Trump signals possible deadline extension and outlines for deal starting to be sketched out), and possibly support from the continued narrative of central banks ceasing their tightening ways after this week’s FOMC meeting minutes showed a likely end to their balance sheet reduction this year. Because of its perceived safe haven status, this likely brought in some dollar pressure throughout the week as sentiment improved, and probably why we only saw the Greenback outperform the Japanese yen on sentiment alone (AUD and NZD were likely weak on Asia region trade worries).
Additional pressure is likely attributed to the call from the U.S. to China to stabilize the Chinese yuan, which is also the odds-on reason why we saw the round of uniform USD selling during the Tuesday trading session.
On Wednesday, the Greenback did see a short round of uniform buying after the release of the FOMC meeting minutes, possibly due to traders focusing on the Fed’s view that the U.S. is on solid footing while foreign economic growth was subdued, or that their outlook was still positive for the U.S. (expect a decline in the unemployment rate and that Core PCE price inflation was still expected to step up to 2 percent over this year). It might also be on the idea that rate hikes weren’t totally off the table in 2019, leaving the possibility of hikes on if the economy improves.
From Wednesday on, uniform price action between USD pairs seemed to be few and far between, but couple of arguments could be made for a short rally on Thursday after weak durable goods and Philly Fed manufacturing sentiment possibly had traders buying USD as a safe haven play. And on Friday, bearish sentiment hit the Greenback across board early in the U.S. trading session, and with no apparent catalyst for the Greenback selling, it’s possible traders were pricing in optimistic developments in the U.S.-China trade story, or possibly positioning ahead of more dovish comments from various scheduled Federal Reserve member speeches later in the day or the soon to be released Monetary Policy Report.