An unexpectedly sharp bounce in the latest IHS Markit household finance index was not enough to prevent the pound from shedding ground yesterday.
• New Zealand dollar jumps after RBNZ rules out interest rate cut
• US dollar edges lower
European Commission forecasts could extend euro losses
The euro was knocked back on Wednesday, retreating close to a four-month low against the US dollar as the Eurozone’s latest manufacturing data made for some dire reading.
Eurostat reported industrial production in the bloc contracted 2.1% on a monthly basis in December, leading to an annual decline of 4.1%, the largest year-on-year drop since 2018.
Adding further pressure to the single currency was a prediction from Deutsche Bank that Germany is at risk of falling into a recession this year due to the disruption caused by the coronavirus outbreak.
Today the spotlight will be on the European Commission’s latest economic forecasts, with the euro potentially remaining under pressure if the EC downgrades its expectations in light of some lacklustre data in recent months.
Manufacturing sector rebound set to boost New Zealand dollar
Demand for the New Zealand dollar picked up sharply on Wednesday as markets reacted to the Reserve Bank of New Zealand’s (RBNZ) monetary policy announcement.
The central bank proved more optimistic in tone than investors had expected, indicating that no further interest rate cuts are on the table unless the impact of the coronavirus exceeds expectations.
Further gains could be in store for the New Zealand dollar this evening if January’s manufacturing PMI rebounds as forecast.
If the manufacturing sector returned to a positive state of growth at the start of the year this would offer investors fresh cause for confidence in the economic outlook.
US dollar looks for rallying point on higher US inflation
In the wake of Federal Reserve Chair Jerome Powell’s dovish comments the US dollar struggled to find any particular traction against its rivals.
With the door to a potential interest rate cut reopened the appeal of the US dollar diminished, particularly as market risk appetite also saw an improvement.
Even though the consumer price index is not the Fed’s preferred measure of inflationary pressure a stronger showing in January’s data could still offer USD exchange rates a boost, however.
As long as inflation appears on course to tick higher in the months ahead this could put a floor under the US dollar.
Today's key market data
10:00 - EUR – European Commission Forecasts
13:30 - USD – Consumer Price Index
21:30 - NZD - Manufacturing PMI
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)