US Dollar Falls After Disappointing Manufacturing Data

The dollar rose in the morning session after yesterday’s hawkish statement by Jerome Powell. In a statement from Portugal, he reiterated that there was room for more interest rate hikes. He based this on the recent pace of economic growth, record low unemployment rates, and rising inflation. The Atlanta Fed has recently issued a forecast for a 4% economic growth in the second quarter. In the statement, he also said that the Fed would limit the forward guidance which it started after the crisis. Meanwhile, the initial jobless claims dropped to 218K, compared to the expected 220K while continuing jobless claims dropped to 1,723 million. The Philadelphia Fed manufacturing index dropped to 19.9, the lowest level since August last year, a reflection of increased input prices.

The New Zealand dollar fell today after the country reported weaker economic growth for the first quarter. Growth in the quarter declined to 0.5% from the 0.6% seen in the fourth quarter. On an annual basis, the economy grew by 2.7%, which was lower than Q4’s 2.9%. The low growth was attributed to increased energy prices, increased imports, and falling exports. 13 of the sectors tracked by the bureau of statistics rose in the quarter, with construction having the biggest decline. Milk prices have risen as a result of an earlier drought while meat exports have remained unchanged.

The Swiss National Bank released its interest rate decision today. The bank left the base lending rates at negative 0.75% which was expected. The officials guided that the rates could remain unchanged in the foreseeable future because they believe that the franc is overvalued. They also increased their guidance for the inflation this year to 0.9% from the last reported 0.8%. This increase will mostly be attributed to the higher crude oil prices. For 2019 and 2020, they estimated that inflation will be at 1.9% and 2.0% respectively. Their main concern for the Swiss economy was in the housing market where house prices have continued to increase in recent months. They believe that the pace of price gains could lead to a recession or correction in the housing market.

The Bank of England (BOE) left interest rates unchanged as expected. What was not expected was the increase in the number of officials favouring a rate hike. The chief economist – Andy Haldane – along with Ian McCafferty and Michael Saunders voted for a 0.75% rate increase. Traders were expecting the latter two to vote for an increase. Therefore, traders believe that the BOE will likely hike in September. The officials also gave a direction on when they expect to start winding down the QE. In the statement, they said they would end asset purchases when the bank lending rate reaches 1.5%.

EUR/USD

After initially falling, the EUR/USD pair jumped to the highest level since yesterday after weak manufacturing data. The pair is now trading at 1.1590, which is the 23.6% Fibonacci retracement level. As the upward momentum builds, the pair could test the 38.2% and 50% Fibonacci retracement levels of 1.1640 and 1.1680 respectively.

GBP/USD

The GBP/USD reversed earlier losses and rose to the highest level since Tuesday. The pair has successfully tested – and crossed - the 23.6% and 38.2% Fibonacci retracement levels of 1.3182 and 1.3230 respectively. The pair will likely move above to test the 50% Fibonacci retracement level of 1.3274 which forms an important resistance level.

USD/CHF

The USD/CHF pair dropped to the lowest level since Tuesday. The pair is now trading at 0.9931 mostly because of overall dollar weakness. As shown below, the pair has been trading in a horizontal support and resistance pattern. Therefore, a drop below the important support of 0.9917 could see the pair continue declining potentially to the 0.9895 level.