• Another disappointing US data
  • Greece asks for a bridge loan
  • Pound is the new darling
  • Australia could lose A$500 billion

The US dollar failed to gain any traction overnight as yesterday’s release of the January Conference Board Leading Economic Index disappointed the market. The Leading Index, which is used by economists to predict changing economic conditions in the economy, increased 0.2 percent to 121.1 (from 100 in 2010) last month, following a 0.4 percent increase in December, and a 0.3 percent increase in November.  The market was expecting an increase of at least 0.3 percent in January.

The chief economist of the Conference Board wrote, “The U.S. Leading Economic Index increased again in January, but its pace of growth has moderated in recent months,” and “the lack of strong momentum in residential construction, along with a weak outlook for new orders in manufacturing, poses a downside risk for the U.S. economy.”

One disappointing economic report may not suggest any fundamental shift in the economy. However a string of recent economic data have been weaker than expected.  In fact, Citibank’s Surprise Economic Index, which measures the actual outcome of economic data releases relative to consensus forecast estimates, is at its lowest level in nearly two years after a streak of stronger-than-expected data last year.feb-20 graph

The recent drop in the Surprise Economic Index is in line with a Federal Reserve statement from Wednesday. This signals policy makers’ willingness to keep interest rates low for longer, given risks to the economy ranging from a stronger dollar to stagnant wages and a decelerating monthly consumer spending.  And as mentioned in the past updates, lower interest rates will continue to hold back the dollar from making additional gains this year.

 

There are no major economic reports or events scheduled for today.

 

EUR-USD remained under pressure at below 1.1400 as Greece requested a 6-month bridge loan yesterday. The European Union Finance Ministers will discuss the request today. While Greece told Europe to take it or leave it, the European Central Banks does not seem to be willing to bail out Greece.  As a consequence, the currency pair may see heightened volatility today as the market waits for an outcome of the EU Finance Minister meeting. Stay tuned.

 

GBP-USD remains the darling of the foreign exchange market and continues to trade above 1.5400. The upcoming release of the January official retail sales report this morning should reaffirm the picture of robust economic activity and continue to support the pound.

 

USD-CAD settled below 1.2500 overnight. Bank of Canada Deputy Governor Agatha Cote warned in her speech that inflation could turn negative due to lower oil prices and underlying inflation will remain below the 2% target due to material excess capacity in the economy.  Governor Cote left the door open to further interest rate cut in March.  The December Retail Sales report will be released today.

 

AUD-USD is trading near 0.7800 early this morning.  The currency pair came under renewed pressure yesterday when a Wall Street Journal article estimated the country could lose A$500 billion in national income over the next decade due to the drop in commodity prices.

 

Have a great Friday!