- USD lost ground to most majors
- Consumers remain cautious
- Greece suggests it will play nice
- CAD recovers as oil price rallies
The foreign exchange market was fairly quiet yesterday, though the dollar lost ground to most major currencies. The dollar began to slip after the release of the December Personal Income and Outlays report which showed that despite a better-than-expected increase in personal income, personal spending actually fell by 0.3 percent month-on-month. The savings rate rose to 4.9 percent from 4.3 percent in November.
Analysts were alarmed by the report since they were expecting a strong pick up in personal spending last month. A rapid fall in gas prices would have added extra hundreds of dollars to consumer pocketbooks to spend. Instead, the disappointing spending data suggests that consumers remain cautious about spending and prefer to save the extra dollars for a rainy day or pay off their debts.
If this cautious outlook continues to prevail in the coming months then the dollar rally that began back in July may come to an end. Note that about 70 percent of the US economy is driven by consumer spending. And with a strong dollar already holding back export growth, a stalling consumer demand will hold back future business investment. Hence weak spending, export and investment will ultimately come together to end the dollar rally.
There is no major economic report scheduled to be released.
EUR-USD has climbed higher overnight on news that a newly elected Greek government intends to repay the bailout debt to the “troika”. However, it is premature to assume that Greece will go along nicely with the ECB, and its demand for the continued austerity. Stay tuned.
GBP-USD is well supported above 1.5000 after the release of January Manufacturing Purchasing Manager Index rose to 53.0 from 52.7 in December. As mentioned in the previous update, the market is expecting no major movements for the currency pair possibly until Thursday when the Bank of England will announce its monetary policy decision.
USD-CAD has fallen back to 1.2550, supported by gains in oil prices. WTI crude oil price managed to secure an 8 percent increase and secured $50 per barrel yesterday, and it will try to establish a bottom at this price level today.
AUD-USD plunged to .7650 after the Reserve Bank of Australia cut the short term interest rate by 0.25 percent early this morning citing that slack in the economy is considerable.
Have a great day!