US stock markets continue to gyrate, though the high-low range for the Dow Jones Industrial Average this last week was ‘only’ 540 points with 50 points for the S&P 500 index. Whereas for the whole of last year, the S&P 500 gained or lost more than 1% on a single day only eight times - the least since the mid-'60s - there have already been twenty-nine 1% moves in the first 69 trading days of 2018. Against this background, the performance of the US Dollar looks pretty tame. The USD index against a basket of major currencies opened last Monday at 89.75 and fell slowly but steadily to a low on Wednesday just below 89.00. It then rallied over half a point to a best level on Thursday around 89.50 before ending the week at 89.35. For all the worries about trade, tariffs, China, Russia and Syria, the entire range over the last 3 weeks for the USD index has been barely 1 ½ points and the first session of the week in Asia has seen just one-tenth of a point separate the high and low.
The external environment for the US Dollar will clearly be dominated by the events in Syria over the weekend and the international reaction to them, both politically and economically. To some extent, the sharp fall in US equity markets in the final session of the week could be seen as a defensive move ahead of an escalation of the military conflict but it remains to be seen whether this will have further to run. And even if stock markets were to take another lurch lower, it is far from clear whether this would have a clear negative impact on the US Dollar. All things equal, the biggest beneficiaries of a sharp reduction in global risk appetite are often the countries which run significant current account surpluses - Japan and the European Union – though the Eurozone is currently going through a relatively soft patch of economic data and its Central Bank is very publicly divided on the outlook for monetary policy. It may well be that the USD does relatively well by default and for want of better alternatives at a time of heightened geo-political uncertainty.
In terms of US economic data, a somewhat quieter week is in prospect. We’ve already had the CPI numbers, the labor market report and the Minutes of the last FOMC meeting. This week we have retail sales and business inventories on Monday, industrial production on Tuesday and the Philly Fed Survey on Thursday. There is a huge volume of Fed-speak to look forward to, also, with at least eleven scheduled speeches in addition to the release of the Beige Book on Wednesday. After today’s numbers, the Atlanta Fed will be updating its forecast of Q1 GDP (currently 2.0%) later this afternoon. The USD index opens in Europe this morning at 89.35.