Weekly Outlook Ending on 13th May 2017
U.S dollar weekly declines to 1-month low but remains broadly supported ahead of FED meeting next month.
The U.S. Dollar Index rallied on Friday from near one-month lows from the previous session, as investors digested a fresh batch of comments from key Federal Reserve policymakers on the possibility of a near-term interest rate hike by the U.S. central bank.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, shed 0.27% to 100.18.U.S. economic data dominated moves in the greenback, as investors mulled over a slowdown in personal spending and consumer sentiment while a positive Chicago PMI print failed to lift sentiment. The University of Michigan said its consumer sentiment index slipped to 96.9 in March from an initial estimate of 97.6, which was well below economists’ forecast of an unchanged reading. The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.1% against expectations of a 0.2% increase. Meanwhile, the Chicago purchasing managers’ index rose to 57.7 in March from 57.4 in February. A reading above 50 indicates economic expansion, whereas a reading below 50 indicates contraction. Analysts had expected a Chicago PMI reading of 56.9.Elsewhere, the Euro gained against the dollar, despite a slowdown in Eurozone inflation in March. Eurostat reported that the consumer price index (CPI), rose 1.5% in March, compared to expectations of a 1.8% increase.
Euro post gains on weekly session, holds on 8 week high.
Euro modest gains on weekly session, as minutes from the Federal Reserve's July meeting showed a bias among policymakers against raising interest rates soon.
The minutes showed members of the rate-setting Federal Open Market Committee were generally upbeat about the U.S. economic outlook. Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and FOMC members said they wanted to "leave their policy options open."
The minutes disappointed those expecting that the Fed could be turning more hawkish. Those expectations had been bolstered by comments from New York Fed chief William Dudley on Thursday, who said the central bank could possibly raise rates as soon as September. Dudley on Thursday reinforced his message on the broader economy being on track. While the dollar initially pared losses, it soon shrugged off the remarks and extended losses in the afternoon trading session. "(Dudley) said his views haven't changed, but at this point, I think the market has sort of bought back into the dovish Fed story," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
Pound holds in green .
The pound edged lower against the U.S. dollar on Friday, after the release of downbeat U.K. economic growth data and a more positive report on the country’s current account, while investors eyed upcoming U.S. economic reports. GBP/USD hit 1.2447 during European morning trade, the session low; the pair subsequently consolidated at 1.2465, down 0.10%.Cable was likely to find support at 1.2401, Thursday’s low and resistance at 1.2598, the high of March 28.The U.K. Office for National Statistics said its final reading of fourth quarter gross domestic product was an increase of 0.7%, in line with expectations and a previous estimate. Year-on-hear however, GDP rose 1.9% in the fourth quarter, below expectations and a previous estimate for a growth rate of 2.0%. A separate report showed that the U.K. current account deficit narrowed to £12.1 billion in the fourth quarter of 2016 from £25.7 billion in the third quarter, whose figure was revised from a previous estimate of 25.5 billion. Analysts had expected the current account deficit to narrow to just £16.0 billion in the last quarter. The pound has been surprisingly resilient this week, as British Prime Minister Theresa May formally began Brexit proceedings on Wednesday, launching a two-year negotiation process before the divorce comes into effect in late March 2019.Meanwhile, sentiment on the greenback became more vulnerable ahead of a string of U.S. economic reports due later in the day, although upbeat data released earlier in the week still lent some support. Markets were also jittery as U.S. President Trump was scheduled later Friday to sign executive orders aimed at identifying abuses that are causing massive U.S. trade deficits and clamping down on non-payment of anti-dumping and anti-subsidy duties on imports. Commerce Secretary Wilbur Ross specified that one of the orders directs a major review of the causes of U.S. trade deficits, including "currency misalignment."
Gold up temporary investors awaits job Data on coming Friday
Gold prices traded higher on Friday, buoyed by a weaker dollar, after the release of mostly negative economic data while uncertainty over the outcome of the European elections continued to increase demand for the yellow metal. Gold for April delivery on the Comex division of the New York Mercantile Exchange gained $2.15, or 0.17%, to $1,247.05 a troy ounce. Gold prices recovered from a dip earlier in the session, as the dollar slumped to lows, after the latest batch of economic data revealed a slowdown in personal spending and consumer sentiment. Dollar denominated assets such as gold are sensitive to moves in the dollar, as a stronger greenback, makes the precious metal more expensive for foreign holders, which lessens demand. The University of Michigan said its consumer sentiment index slipped to 96.9 in March from an initial estimate of 97.6, which was well below economists’ forecast of an unchanged reading. The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.1% against expectations of a 0.2% increase. Gold is on track for its best quarterly performance in a year, the yellow metal has benefited from a flight to safety in recent months, as investors sought refuge in the yellow metal amid uncertainty over the outcome of European election and growing concerns that President Trump’s promised economic stimulus package may be delayed. The comments from the Fed chair could shed light on the U.S. central bank's opaque long-term monetary policy forecast, which has been clouded by diverging views from participants over the last few weeks on the timing of its next rate hike.
Crude post strong weekly gain.
Crude settled higher on Friday, but ended the quarter in negative, as investors questioned the effectiveness of the OPEC-led production cut agreement to tackle a glut in supply while the number of active U.S. drilling rigs rose for an eleventh straight week. Oilfield services firm Barker Hughes reported its weekly U.S. rig count rose by 10 to 662; it was the eleventh straight weekly increase. On the New York Mercantile Exchange crude futures for May delivery gained 25 cents to settle at $48.20 a barrel, while on London's Intercontinental Exchange, Brent added 50 cents to trade at $51.62 a barrel. Despite, a high level of compliance from OPEC members with a deal to cut production, crude futures ended the quarter down 5.8%, as investors focused on the lower level of compliance from eleven non-OPEC oil producers that joined the deal while a sharp increase in U.S. shale and crude production weighed on sentiment. Eleven non-OPEC oil producers that joined a global deal to reduce output to boost prices delivered only 64% of promised cuts in February, an industry source said March 20, which was far below the roughly 90% level of compliance from OPEC members. Meanwhile, investors worried that the faster pace of output from U.S. shale and crude producers could dampened OPEC’s efforts to reduce the supply and demand imbalance in the industry. Despite, a dip in crude inventories on Wednesday, crude stockpiles remained at record highs – at over 520 million barrels, current crude supplies are up 6% over the past year.
It was a positive week for U.S. equities. Starting with the U.S. stocks; Dow Jones gains 233 points and 1.13%. Nasdaq Composite gain of 2.35% and 139 points. S&P 500 gains 27 points and 0.32% for the week.
Coming to European counterparts, UK’s FTSE 100 fell 41 points and lost 0.60%. German DAX 30 also fell 188 points and lost 1.78%. Additionally, French CAC 40 fell 106 points and lost 2.41% on the weekly basis.
In commodities, Gold gains $6 and 0.48% while Crude Oil added $3.74 and 7.61% over the week.
Euro made 1.06% over the week while Yen also made 1.73%. Pound made 0.59% while Ice dollar index fell 1.83% on this week.
Note: Here all the currencies are measured in percentage of the U.S. dollar.