Macroeconomic data released on Tuesday exceeded expectations and the index measuring economic activity in the New York area further suggested that stronger inflation is around the corner. This translated into a sell-off in bonds and a slight strengthening of the dollar against the main currencies and stronger to the zloty and other currencies of the basket.
What won't go up, must finally come down. The EUR/USD pair's gains failed to get traction after the main currency pair moved above 1.2150. A sharp turn pushed the pair below the 1.21 mark. The pound sterling remains stronger than the euro, and consequently, the EUR/GBP found itself trading below the 0.87 handle.
The Federal Reserve holds its ground
More Federal Reserve voting representatives this year are joining the group warning that current policy won't be abandoned anytime soon. Mary C. Daly, for example, stated that there is no room for concern that inflation could get out of control in the near term and that fear of inflation could cost millions of jobs. On the other hand, Michelle Bowman announced that soft, growth-supportive policy would be maintained as long as the Federal Reserve's goals are not met. In contrast to European central banks, the so-called dual mandate, a combination of an appropriate inflation rate of around 2% and a state of almost full employment, is in place. The policymaker stressed at the same time that the economy has a long way to go, even if the strong acceleration of the rebound expected for the second half of this year is taken into account.
There are more public speeches ahead, including from Eric Rosengren, who, while not voting this year, is counted among those advocating faster policy normalization. Feedback from this camp will, therefore, be quite a valuable clue. Of course, investors will also be looking for leads in the FOMC meeting minutes published in the evening. Part of the market is waiting for any hint that the Federal Reserve may sooner withdraw from its asset purchases at the pace of at least 120 billion USD per month. Such a scenario would be positive for the US currency, but it is hard not to notice that the monetary authorities do their best to suppress such expectations. Another very important reading will be the US retail sales, which will complete the picture of the economy's condition and supplement the conclusions from the inflation and labour market readings. It is worth noting that in the previous two months, this index was much below market forecasts.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
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16 Feb 2021 8:59
Major currencies, major underperformers (Daily analysis 16.02.2021)
Macroeconomic data released on Tuesday exceeded expectations and the index measuring economic activity in the New York area further suggested that stronger inflation is around the corner. This translated into a sell-off in bonds and a slight strengthening of the dollar against the main currencies and stronger to the zloty and other currencies of the basket.
What won't go up, must finally come down. The EUR/USD pair's gains failed to get traction after the main currency pair moved above 1.2150. A sharp turn pushed the pair below the 1.21 mark. The pound sterling remains stronger than the euro, and consequently, the EUR/GBP found itself trading below the 0.87 handle.
The Federal Reserve holds its ground
More Federal Reserve voting representatives this year are joining the group warning that current policy won't be abandoned anytime soon. Mary C. Daly, for example, stated that there is no room for concern that inflation could get out of control in the near term and that fear of inflation could cost millions of jobs. On the other hand, Michelle Bowman announced that soft, growth-supportive policy would be maintained as long as the Federal Reserve's goals are not met. In contrast to European central banks, the so-called dual mandate, a combination of an appropriate inflation rate of around 2% and a state of almost full employment, is in place. The policymaker stressed at the same time that the economy has a long way to go, even if the strong acceleration of the rebound expected for the second half of this year is taken into account.
There are more public speeches ahead, including from Eric Rosengren, who, while not voting this year, is counted among those advocating faster policy normalization. Feedback from this camp will, therefore, be quite a valuable clue. Of course, investors will also be looking for leads in the FOMC meeting minutes published in the evening. Part of the market is waiting for any hint that the Federal Reserve may sooner withdraw from its asset purchases at the pace of at least 120 billion USD per month. Such a scenario would be positive for the US currency, but it is hard not to notice that the monetary authorities do their best to suppress such expectations. Another very important reading will be the US retail sales, which will complete the picture of the economy's condition and supplement the conclusions from the inflation and labour market readings. It is worth noting that in the previous two months, this index was much below market forecasts.
See also:
Major currencies, major underperformers (Daily analysis 16.02.2021)
A new week and renewed hunt for yield (Daily analysis 15.02.2021)
Inflation disappointment discussions may move the US dollar below in red (Daily analysis 11.02.2021)
Pound sterling and Norwegian krone lead the pack (Daily analysis 10.02.2021)
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