It seems that the U.S. dollar is experiencing some post-Valentine’s blues. The first half of February saw a steadily rising dollar against a broad basket of currencies, but since the holiday the greenback has been in the red. It is likely that this is simply a healthy pullback after the protracted rise.
As reported yesterday in the daily update, rate hike expectations are on the rise. Buoyed by optimism from Chair of the Federal Reserve Janet Yellen, as well as encouraging inflation data, odds are up to 44% for a March hike. Worthy of note is that with the possibility of rate hikes increasing (a boon to the U.S. dollar), significant risks in Europe and elsewhere, and positive U.S. data, we still have dollar weakness today. As Tom Clancy said: “The difference between fiction and reality? Fiction has to make sense.”
Perhaps the rhetoric from the European Central Bank (ECB) is what is giving USD bulls pause. In a statement released today, the ECB stated that “… market participants had recently seemed to be adopting a more cautious attitude towards the US policy outlook for 2017, reflecting, inter alia, investors’ US Treasury positioning and a possible moderation in US economic growth. (emphasis added)” The ECB overall painted a very cautious outlook for investors, asserting that as of January “there was no room for complacency, as risks and uncertainties had not receded substantially.”
Japanese yen and the Swiss franc are rising most against the dollar today among major currencies. The rise of these two traditional safe haven currencies clearly delineate the risk-off attitude in the currency markets today.
EURUSD: Euro is up considerably against the USD, after dipping into the 1.05s yesterday.
GBPUSD: Sterling is up against USD on account of the latter’s broad weakness.
AUDUSD: Aussie dollar is actually down just a bit against the greenback in comparison to the closing rate yesterday. China, the trade partner Australia heavily relies on, released very weak foreign direct investment figures for January (falling 9.2% from the previous month!).
USDCAD: Canadian dollar has risen against the its green-backed cousin due to oil prices rising as well as U.S. dollar weakness.