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The U.S. dollar was net red once again, despite a valiant effort from Dollar bulls mid-week on rising inflation/rates speculation.

Overall, improving economic data and vaccines hopes had traders moving back in risk assets at the end of the week, reversing the Greenback’s rally ahead of the weekend.

Overlay of USD Pairs: 1-Hour Forex Chart
Overlay of USD Pairs: 1-Hour Forex Chart
USD Weekly Performance from MarketMilk
USD Weekly Performance from MarketMilk

United States Headlines and Economic data

Tuesday:

The Empire State Manufacturing Survey’s general business conditions index increased to 12.1 in February from 3.5 in January, the highest level since September.

“In February, 32% of respondents said conditions had improved in the month, while 20% reported that conditions had worsened compared with January.”

“The new orders index rose four points to 10.8, indicating that orders increased, while the shipments index fell to 4.0, pointing to just a small increase in shipments.”

“Delivery times rose at the fastest pace in a year, and inventories were higher, the NY Fed said.”

“The index for number of employees was little changed at 12.1, indicating just modest gains in employment with about 20% of firms saying that employment levels increased in February while 8% reported a decrease. The average workweek index edged up to 9.0.”

Yellen shift on vast Treasury cash pile poses problem for Powell

“Already low short-term interest rates are set to sink further, potentially below zero, after the Treasury announced plans earlier this month to reduce the stockpile of cash it amassed at the Fed over the last year to fight the pandemic and the deep recession it caused.

The move, which aims to return its cash position at the central bank to more normal levels, will flood the financial system with liquidity and complicate Powell’s effort to keep a tight grip over money market rates.”

Fed’s Daly says inflation risk shouldn’t be a focus right now

Rising U.S. yields takes edge off stocks rally

“The prospect of better risk-free returns weighed on equities and MSCI’s broadest index of Asia-Pacific shares outside Japan was stalled just shy of Tuesday’s record peak.”

“You’re basically taking away a deflation worry,” said Rob Carnell, chief economist in Asia at ING.

“New COVID-19 cases in the United States fell for a fifth consecutive week last week.”

Fed’s George: Pandemic changes in housing, work patterns could stress real estate markets

“While the strains on real estate finance currently appear contained, this relative health has been importantly supported by the extraordinary policy response to the pandemic,” George said in remarks to the forum, organized by the University of Missouri-Kansas City. “If support fades ahead of a sustained recovery, stresses could become more prominent, especially against a backdrop of disruptive structural change.”

Wednesday:

U.S. Retail sales burst higher in January as consumers use stimulus checks to spend heavily

“Retail sales jumped 5.3% to start 2021, well ahead of the 1.2% expectation.”

“Every major category of spending, including food and drinking establishments, saw gains.”

U.S. producer prices post biggest gain since 2009

“The producer price index for final demand jumped 1.3% last month, the biggest gain since December 2009 when the government revamped the series, the Labor Department said on Wednesday.”

Homebuilder confidence improves, despite record high lumber prices

“Builder sentiment rose one point to 84 in February according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released Wednesday. Anything above 50 is considered positive sentiment.”

U.S. industrial output jumps 0.9% in January for fourth straight gain, vs. expectations of 0.% gain. “Production rose a revised 1.3% in December, down slightly from the prior estimate of a 1.6% gain.”

FOMC minutes: Not yet ready to taper policy easing anytime soon

FOMC: Stronger outlook for 2021 compared to December forecasts

U.S. business inventories up by 0.6% vs. 0.5% consensus

“Economists polled by Reuters had forecast inventories rising 0.5% in December. Inventories fell 2.6% on a year-on-year basis in December.”

Thursday:

U.S. housing starts fell more than expected in January amid soaring lumber prices

“U.S. homebuilding fell more than expected in January amid soaring lumber prices, though a surge in permits for future construction suggested the housing market remains supported by lean inventories and historically low mortgage rates.”

“Permits for future homebuilding shot up 10.4% to a rate of 1.881 million units in January. Permits typically lead starts by one to two months.”

U.S. import prices increased 1.4% in January, biggest gain since 2012, lifted by higher prices for energy products and a weak dollar

“Export prices increased 2.3% on a year-on-year basis in January, after rising 0.4% in December.”

US jobless claims rise to 861,000 as layoffs stay high

“The figures underscore that the job market has stalled, with employers having added a mere 49,000 jobs in January after cutting workers in December. Nearly 10 million jobs remain lost to the pandemic. Though the unemployment rate fell last month from 6.7%, to 6.3%, it did so in part because some people stopped looking for jobs. People who aren’t actively seeking work aren’t counted as unemployed.”

Outages drop below 1 million in Texas; icy weather goes east

Brainard: Fed wants maximum employment, growth that is sustainable

“The Fed will be focused on long-term risks of climate change but also how the transition to a less carbon-dependent economy “might affect our economic growth over the medium to long term,” Brainard said in comments to an Institute of International Finance summit on climate change.” 

U.S. import prices post biggest gain since 2012 – “The Labor Department said on Thursday import prices jumped 1.4% last month, the biggest gain since March 2012, after increasing 1.0% in December.”

Philly Fed Manufacturing Index decreased 3 points to 23.1 in February

“Over 37 percent of the firms reported increases in new orders this month, compared with 45 percent last month. The current shipments index edged down 1 point to 21.5 in February.”

“The prices paid diffusion index increased 9 points to 54.4. Nearly 55 percent of the firms reported increases in input prices, compared with 47 percent last month.”

Friday:

Flash U.S. Manufacturing PMI at 58.5 vs. 59.2 in January. – “Price gauges hit record highs as businesses report fastest growth for almost six years”

“The seasonally adjusted IHS Markit Flash U.S. Services PMI Business Activity Index registered 58.9 in February, up from 58.3 in January. The rise in business activity was the strongest for almost six years, as service sector firms noted greater client demand.”

Fed’s Williams say high market prices justified by economic growth and low rates

“Williams also addressed the high levels of monetary and fiscal stimulus that have been provided during the Covid-19 pandemic. He said he is not concerned that policymakers are doing too much, despite an economy that appears to be defying earlier projections for a slow start to 2021.”

US existing home sales, and prices, rise again in January

“Existing U.S. home sales rose 0.6% in January from the previous month to a seasonally-adjusted rate of 6.69 million annualized units, the National Association of Realtors said Friday. Sales jumped 23.7% from a year earlier. It was the strongest sales pace since October and the second highest since 2006.”

“Sales easily could have been even 20% higher if there had been more inventory and more choices,” said Lawrence Yun, NAR’s chief economist.