Dollar falls broadly after weak U.S. data: Feb 5, 2016

Market Review - 04/02/2016 22:25GMT 
 
Dollar falls broadly after weak U.S. data

The greenback fell further versus other major currencies Thursday as release of a slew of downbeat U.S. economic reports raised uncertainty over the pace of Federal Reserve to increase interest rates this year.

Versus the Japanese yen, U.S. dollar came under renewed selling pressure after a brief rise to 118.24 ahead of Asian open and fell to 117.34 in European morning due to broad-based weakness in the greenback. Later, price continued to ratchet lower in New York morning after release of a slew of downbeat U.S. economic data and dropped to 116.67 in New York afternoon before moving sideways.

Data on Thursday showed that U.S. initial jobless claims rose by a larger-than-expected amount of 8,000 to 285,000 last week, but remained in territory usually associated with a firming labor market. Separately, U.S. non-farm productivity fell to a seasonally adjusted -3.0% in the final quarter of 2015, from 2.1% in the preceding quarter whose figure was revised down from 2.2%. In addition, official data showed that factory orders in U.S. decreased by a seasonally adjusted 2.9% in December, worse than forecasts for a decline of 2.8%. Factory orders fell 0.7% in November, whose figure was revised from a previously reported decline of 0.2%. Having said that, another official report showed that U.S. unit labor costs rose to a seasonally adjusted 4.5% in Q4, from 1.9% in the preceding quarter whose figure was revised up from 1.8%.

The single currency round support at 1.1070 in European morning and then rallied above Asian high of 1.1117 to a fresh 3-month peak at 1.1239 in New York morning after early comments from ECB's President Mario Draghi together with the dollar's broad-based weakness before retreating to 1.1157 on cross-selling in euro versus yen and franc.

ECB's President Mario Draghi said on Thursday, 'most fundamental question facing all major central banks today is this: can our price stability mandates still be delivered; low inflation feeds into inflation expectations and creates second-round effects; no reason for central banks to resign their mandates simply because we are all being affected by global disinflation; if, on the other hand, we all act to deliver our mandates, then global disinflationary forces can eventually be tamed; there is no reason why any of the structural changes around inflation should make our current price stability objectives unobtainable; even in the face of common global shocks, central banks have the ability to deliver their mandates; it is about the credibility of monetary policy in anchoring inflation expectations; in a context of prolonged low inflation, monetary policy cannot be relaxed about a succession of supply shock; adopting a wait-and-see attitude and extending the policy horizon brings with it risks; forces in the global economy today that are conspiring to hold inflation down. those forces might cause inflation to return more slowly to our objective; in a context of prolonged low inflation, monetary policy cannot be relaxed about a succession of supply shocks; adopting a wait-and-see attitude and extending the policy horizon brings with it risks; the risks of acting too late outweigh the risks of acting too early; no doubt that if we needed to adopt a more expansionary policy, the risk of side effects would not stand in our way; if we do not "surrender" to low inflation - and we certainly do not - in the steady state it will return to levels consistent with our objective; always aim to limit the distortions caused by our policy, but what comes first is the price stability objective; there is no reason for central banks to resign their mandates simply because we are all being affected by global disinflation.'

The British pound went through a roller coaster session on Thursday. Despite retreating from Asian high of 1.4604 to 1.4563 in European morning, price rallied to 1.4665 ahead of the latest monetary policy decision by Bank of England before tumbling to 1.4530 in European midday due to the dovish BoE's minutes. Later, price surged to another session high of 1.4572 in New York morning but coming off to 1.4561 in part due to cross-selling in sterling versus yen and euro.

Minutes from the Bank of England's policy meeting showed that all nine members were in favor of leaving the key interest rate at a record low of 0.5%, as Ian McCafferty dropped his call for an interest rate hike for the first time in six meetings. Market expected the central bank to vote 8-1 to keep policy steady. The Bank of England said it was holding the benchmark interest rate at 0.50%, in a widely expected move. The rate has been held at that level since March 2009. The central bank also said it was to maintain the stock of asset purchases financed by the issuance of central bank reserves at 375 billion pounds. All nine members were in favor of making no changes to the central bank's 375 billion pounds asset-purchase program.

In other news, the head of the International Monetary Fund Christine Lagarde said on Thursday, 'softening of global growth, capital outflows, stock market declines are cause for concern; oil and metals prices are likely to stay low for "quite some time" pressuring commodity exporting countries; emerging market countries could soften shocks by boosting non-commodity revenues, increasing exchange rate flexibility; advanced economies should support growth through accomodative monetary policy, infrastructure spending; IMF will consider broadening, strengthening precautionary financing instruments; important for U.S. federal reserve to normalize policy in a "prudent and well-communicated manner".'

Data to be released on Friday:

Australia retail sales, Germany factory orders, France imports, exports, trade balance, U.S. unemployment rate, non-farm payroll, average earnings, private payrolls, manufacturing payrolls, participation rate, trade balance, Canada imports, exports, international balance, participation rate, net change in employment and Ivey PMI.