US dollar fell last week in the wake of the FOMC policy decision

Currency Global


Sterling rose last week, boosted by positive Brexit developments after the EU Commission confirmed they had reached an agreement with the UK government on the terms of the transition period.

The Bank of England rate decision on Thursday became the main focus after strong wage data and a 7-2 vote to leave the Bank Rate on hold led to further gains in the pound. This week could be somewhat quieter for Sterling although Brexit developments will be closely watched as some work still needs to be done on the Irish border issue. Data wise, Q4 GDP figures are out on Thursday, with expectations of 1.5% against a previous reading of 1.4%.



The US Dollar fell last week in the wake of the FOMC policy decision. Rates were hiked 25 basis points as expected, but policymakers maintained the view that rates would rise three times this year after economists had suggested they could move to four. The statement also downgraded its language surrounding the economy, noting that economic activity was expanding at a moderate pace rather than solid.

The US import tariffs also received plenty of attention with US stocks and government bond yields moving sharply lower, but the Dollar was more resilient. The Greenback has seen a slightly softer start to this week, losing ground against most of its G10 rivals. Looking ahead, we have four FOMC speakers scheduled so far who are likely to be grilled on last week’s policy change. Data wise, Q4 GDP on Wednesday and PCE inflation data on Thursday will be the main focus.



European Central Bank policymakers are shifting their debate to the expected path of interest rates as even some of its most dovish rate setters accept that lucrative bond buys should end this year – this is the view of sources close to the discussion, reported by Reuters. Governing Council member Mersch added that all prerequisites for a sustainable adjustment of inflation to their goal are given, while Smets offered some balance by arguing that the level of slack in the economy may be bigger than they thought.

Data wise, expansion in the Euro Zone manufacturing sector fell to a 14-month low while services hit a 5-month low. Data this week includes Euro Zone confidence indicators (Tuesday) plus German unemployment and CPI on Thursday.



The Japanese Yen was boosted by safe-haven demand last week as equity markets were rocked by the US import tariffs. There were diverging comments from the newest BoJ policymakers which may have balanced each other out – Wakatabe said he wants to avoid a premature tightening and will not hesitate to ease further if needed, while Amamiya said there is no current need to consider a rate increase, but he would not rule out adjusting rates before reaching inflation. Inflation figures released on Thursday were also largely ignored as headline CPI met expectations at +1.5%.

This week we await retail sales, unemployment and industrial production data.



The Swiss Franc benefited from safe-haven demand last week as equity markets were rocked by the US import tariffs. On the domestic front, the Swiss statistics office (SECO) nudged up their 2018 GDP forecast to +2.4% from +2.3% while lifting inflation to +0.6% from +0.3%. Confidence indicators are in focus this week with ZEW due on Wednesday and KOF on Thursday.



Impulses for the Australian Dollar were mixed last week. Investors welcomed news that Australia would be exempt from the proposed US import tariffs on steel and aluminium. However, losses were seen after the February labour market data where the unemployment rate ticked up to 5.6% from 5.5%. The RBA minutes also warned that a rising Australian Dollar would slow growth and inflation.

This week, we expect to hear from RBA Assistant Governor Kent tomorrow while new home sales and housing loans are also due.



Canadian inflation data surprised to the upside last week, underpinning the Canadian Dollar to a weekly gain. Investors will also have welcomed news that Canada will be exempt from the incoming US import tariffs as they try to renegotiate NAFTA with the US. It was reported that that the US has dropped the contentious auto-content proposal.

At the Bank of Canada, Deputy Governor Wilkins said there could be a case for taking longer to bring inflation back to target than the usual six to eight quarters although his comments were largely ignored. This week, GDP and PPI figures are both due tomorrow.



The Reserve Bank of New Zealand provided no real surprise on Thursday as they left the OCR unchanged at 1.75%. They reiterated the view that policy will remain accommodative for a considerable period while also noting that numerous uncertainties remain. Antipodeans finished with a flurry on Friday however. Trade figures released overnight showed a surprise surplus for February which has boosted the New Zealand Dollar to the top of the G10 pile this morning. Looking ahead, ANZ business confidence and building consents are due on Wednesday.



The Swedish Krona was among the weakest G10 currencies last week as recent dovish rhetoric from the Riksbank continues to weigh. Policymakers were keen to address the currency, starting with Ohlsson on Monday who said the Krona should not strengthen too fast. Floden meanwhile said he has no ambition to weaken the Krona while Jansson added on Friday that it should appreciate gradually. Consumer confidence and retail sales data this week could provide some further direction.



The Norwegian Krone was among the weakest G10 currencies last week, despite the recent hawkish tilt the Norges Bank. Earlier this month, policymakers said it will soon be appropriate to raise the key policy rate while Governor Olsen said it will most likely be raised after summer 2018. Data releases last week will have done little to row back expectations as Wednesday’s unemployment data showed a small drop in the rate to 4.0% from 4.1%. Data this week includes the February retail sales report on Wednesday.


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