NZD edged back above US$0.61 as USD gives up gains

Key Movers

The US dollar continued unwinding gains won following Tuesday’s hotter than expected CPI print, sliding against most major counterparts after retail sales data missed the mark and treasury yields retreated. Headline retail sales retracted 0.8% in January, while analysts revised down November and December numbers suggesting cracks may be appearing in the US economy. While some of the downturn can be explained by seasonal factors, softer manufacturing and industrial production data adds weight behind calls the economy is losing steam. With treasury yields dipping the USD is weaker against commodity currencies and the euro, while the GBP and JPY are the days notable under performers. Both the UK and Japanese GDP data printed below expectations and tipped both economies into technical recession through the 2nd half of 2023 raising questions as to the path of monetary policy moving forward. While BoE members dismissed the data, affirming a commitment to controlling inflation pressures and markets adjusted expectations for a rate cut, market movements were somewhat muted given policy makers appear unmoved. With Japan GDP data contracting, hopes the BOJ will raise rates and abandon its negative rate policy faded, even if the downturn in domestic activity can be explained by rising inflation. The USD remains above 150 and our attentions turn now to US PPI data and inflation expectations for direction into the weekly close.