The USD had initially extended on last week's FOMC-inspired gains

Overview

This week, focus has fallen firmly on the flurry of disappointing US data releases, which have led the USD lower against most major pairs. The USD had initially extended on last week’s FOMC-inspired gains, however came under sustained selling pressure after consecutive weak data releases left the USD-index on course for weekly losses of roughly 2%. Notably, figures for US Retail Sales, Industrial Production, Housing Starts, Building Permits and Factory Orders all missed market estimates, with Empire Manufacturing showing the first negative reading since December and the New Orders component falling for the third consecutive month. As such, expectations for the Fed to raise rates for the first time since 2006 at their June meeting were all but vanquished, with analysts instead shifting their bets to September.

Fed speakers downplayed the weak figures and reaffirmed that a June rate hike could still on the table. However, they did warn that data releases in the intervening period will be key to decide on rate lift-off, while Rosengren said that conditions that would entail monetary tightening have not been satisfied yet and notoriously dovish Kocherlakota called for the Fed to hold off from any tightening until H2 2016.

Jitters over Greece’s liquidity issues and the prospect of a Grexit fell heavily on the EUR, with the shared currency posting sharp losses against GBP amid positive UK economic data, which showed the UK unemployment rate falling to its lowest since July 2008 and CPI avoiding a negative reading. However, broad-based losses in the USD offset EUR weakness, allowing EUR/USD to finish the week with marginal gains.

Looking ahead, focus next week will continue to fall on developments surrounding Greece, with the nation needing to make meaningful breakthroughs with their European creditors. Furthermore, markets will be paying close attention to tier-1 US data releases which include Durable Goods, Existing Home Sales, Weekly Jobs figures and Manufacturing PMI, which in tandem with hints from Fed officials should provide further clarity on the Fed’s rate path. Finally, attention for Europe will centre on the German ZEW survey as participants look to assess the extent of recovery in the Eurozone.