Dollar gains as coronavirus fears ease and upbeat U.S. data, sterling falls on concern over EU-UK trade talks

 Market Review - 19/02/2020  23:36GMT  

Dollar gains as coronavirus fears ease and upbeat U.S. data, sterling falls on concern over EU-UK trade talks

The greenback gained against majority of its peers on Wednesday led by selloff in the Japanese yen as the number of new coronavirus cases decreased together with hopes that the Chinese government will increase its policy stimulus to boost the economy and upbeat U.S. PPI data. Sterling gave back gains despite better-than-expected annual UK inflation on concern over EU-British trade negotiations.  
  
Reuters reported U.S. producer prices increased by the most in more than a year in January, boosted by rises in the costs of services such as healthcare and hotel accommodation.    The Labor Department said on Wednesday its producer price index for final demand jumped 0.5% last month, the largest gain since October 2018, after climbing 0.2% in December.    In the 12 months through January, the PPI advanced 2.1%, the biggest increase since May, after rising 1.3% in December.      
Economists polled by Reuters had forecast the PPI gaining 0.1% in January and rising 1.6% on a year-on-year basis.    Excluding the volatile food, energy and trade services components, producer prices increased 0.4%, the most since April, after rising 0.2% in December. The so-called core PPI increased 1.5% in the 12 months through January, matching December's rise.   
  
Versus the Japanese yen, dollar found renewed buying at 109.86 in Australia and rose to 110.10 in Asian morning, intra-day gain then accelerated at European open and price easily penetrated January's 110.28 high and later hit a 9-1/2 month high at 111.58 in New York afternoon on active selling in jpy as fear over coronavirus eased due to slowdown in number of new reported cases together with news that China was considering further policy stimulus measures to boost economy before easing and upbeat U.S. data.    
Reuters reported mainland China had 1,749 new confirmed cases of coronavirus infections on Tuesday, the country's National Health Commission said on Wednesday, down from 1,886 cases a day earlier and the lowest since Jan. 29.   
  
Although the single currency rebounded from 1.0791 in Australia to 1.0803 in Asian morning, then ratcheted higher to 1.0808 in European morning, euro met renewed selling and fell in tandem with sterling to a fresh 32-month low at 1.0783 in New York before rising to an intra-day high at 1.0811 at New York closing on cross-buying of euro especially vs gbp.  
  
The British pound went through a volatile session. Although cable retreated from 1.3004 in Australia to 1.2988 ahead of European open, the pair then gained to 1.3018 in European morning before falling to 1.2975 on cross-selling in sterling. However, the pound then quickly rallied to session highs at 1.3023 after release of better-than-expected annualized UK inflation data but only to fall to 1.2974 as concern over EU-UK trade negotiations lingered. Later, price tanked to 1-week low at 1.2908 in New York on usd's strength.   
  
Reuters reported British inflation unexpectedly struck a six-month high in January, pushed up by higher petrol prices and a smaller-than-usual drop in airfares, official data showed on Wednesday.    Consumer prices rose at an annual rate of 1.8% compared with 1.3% in December, not far off the Bank of England's 2% target, the Office for National Statistics said.    Their poll of economists had pointed to a rate of 1.6%.    A measure of core inflation, which excludes energy, fuel, alcohol and tobacco, rose to 1.6% from 1.4% in December.  
  
They also then reported the European Union had flagged to Britain well in advance that any free trade deal must come with a commitment from London to uphold fair competition, a senior adviser to the bloc said on Wednesday.    Stefaan de Rynck, an adviser to EU's chief trade negotiator Michel Barnier, also said the trade talks would be tougher than the negotiations that secured Britain's divorce settlement because of their broader scope and time limit.     
Britain left the EU last month with an 11-month business-as-usual transition period, and will need new trading terms from January 2021 to avoid potential disruption to trade.   
  
On the data front, Reuters reported U.S. homebuilding fell less than expected in January while permits surged to a near 13-year high, pointing to sustained housing market strength amid lower mortgage rates.    Housing starts dropped 3.6% to a seasonally adjusted annual rate of 1.567 million units last month, the Commerce Department said on Wednesday. That followed three straight monthly increases.   
Data for December was revised up to show homebuilding rising to a pace of 1.626 million units, the highest level since December 2006, instead of surging to a rate of 1.608 million units as previously reported.    Economists polled by Reuters had forecast housing starts falling to a pace of 1.425 million units in January. Housing starts jumped 21.4% on a year-on-year basis in January.  
  
Data to be released on Thursday :  
  
New Zealand PPI inputs, PPI outputs, Australia employment change, unemployment rate, Germany GfK consumer sentiment, producer prices, Swiss exports, imports, trade balance, industrial production, France CPI, UK retail sales, retail sales ex-fuel, CBI trends orders, U.S. initial jobless claims, Philadelphia Fed business index, leading index, Canada new housing price index, ADP employment change, and EU consumer confidence.