Home Daily Commentaries USD starts the week down as equities rally

USD starts the week down as equities rally

Daily Currency Update

The US dollar index (DXY) was down by roughly 0.3% heading into the weekend as positive trading in European markets carried over into the North American session. This trend has continued this morning as equities rally across all markets to start the week.

The US dollar aimed slightly lower this past week, with the DXY falling 0.7%. Last week was the best week for the S&P 500 since January, meaning that sentiment was a key driver for financial markets. This lowered the demand for safe haven currencies like the US dollar.

Recent inflation data from the Consumer Purchasing Index pointed to slowing disinflation. This was further backed by the Institute for Supply Management price data this past week, which was higher than expected. These are not the results that the central bank wants to see, especially amid a still-tight labor market.

The next data release will show attention turning to the next non-farm payroll report this Friday. The US is expected to add 215,000 jobs in February with the unemployment rate holding at 3.4%. The labor force participation rate is anticipated to remain flat at 62.4%. Furthermore, markets are now pricing in about a 5.5% federal funds rate by the end of the year. This represents an extra 2 rate hikes above what estimates anticipated at the end of January.

Key Movers

The Japanese Yen has found some strength from easing treasury yields today. This might be the key for USD/JPY moves in the week ahead.

The Reserve Bank of Australia will be in the spotlight tomorrow morning with its interest rate decision. Another 25 basis point increase is expected, which will be the 10th consecutive rate hike. The AUD could find some support against the U.S. dollar ahead of Federal Reserve Chair, Jerome Powell’s, semi-annual monetary testimony to lawmakers later in the day.

Eurozone retail sales decreased by 2.3%, coming in worse than the expected 1.8%. This is a 0.3% increase from a month earlier following a 1.7% drop in December.

Expected Ranges

  • EUR/USD: 1.0540 - 1.0691 ▲
  • GBP/USD: 1.1928 - 1.2018 ▲
  • AUD/USD: 0.6710 - 0.6724 ▲
  • USD/CAD: 1.3557 - 1.3631 ▲