Shock manufacturing miss undermines US dollar

Philip McHugh February 26th 2020 - 2 minute read

  • Positive retail sales growth benefits pound
  • Surprise manufacturing index decline drags on US dollar
  • New Zealand dollar weakens amid risk aversion

Anxiety over UK-EU negotiations to limit pound upside
The pound found a rallying point yesterday as February’s CBI reported retail sales index picked up from 0 to 1.
Although this fell short of forecasts investors still took encouragement from this latest sign of a recovery in domestic confidence.
However, with the UK and EU continuing to gear up for their next round of trade negotiations any GBP exchange rate gains could prove short-lived.
As long as the two sides remain at odds over key issues the risk of 2020 ending without a trade deal may weigh heavily on the pound.
US dollar weakened by manufacturing data 
Demand for the US dollar weakened on Tuesday thanks to the Richmond Fed manufacturing index delivering a surprise contraction.
As the index unexpectedly plunged from 20 to -2 in February this undermined confidence in the wider economic outlook, suggesting that a weaker first quarter growth rate could be in store.
However, the mood towards the US dollar could improve this afternoon as long as January’s new home sales data improves as forecast. 
The risk-off mood in markets will also continue lending the US dollar support. 
NZ trade deficit may add to New Zealand dollar sell-off
Escalating fears over the spread of Covid-19 and its ultimate impact on the global economy drove the New Zealand dollar lower yesterday.
Further losses could be in store for NZD exchange rates tonight unless January’s New Zealand trade figures deliver a positive surprise.
If the trade balance slips into a deficit as anticipated the New Zealand dollar could shed fresh ground.
Upcoming Data:
Wednesday, 26th February 2020
15:00 USD New Home Sales
21:45 NZD Balance of Trade

Written by
Philip McHugh

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