USD Set For 5th Week Of Losses

USD losing even more ground

The US dollar is set for its fifth consecutive week of losses on a trade-weighted basis following another poor week of data. Producer prices were once again negative as manufacturers cut prices in order to pass on lower raw material costs to consumers. The strong dollar is a factor, as well as loose monetary policy elsewhere.

PPI on the year has fallen to 0.8% and will likely push CPI lower by 0.1-0.2 in its coming iteration. The latest jobless claims numbers have managed to hold the dollar from getting crushed; jobless claims fell to the lowest four-week average since April 2000. Such is the pergence of US data at the moment, strong labour data is not translating into other areas of the economy.

Fatigue setting in rallies

Elsewhere, markets are fairly tired. Sterling is currently enjoyed its best five days against the USD since October 2009 but the rally looks overextended. Likewise, the stretch in EUR/USD could easily run over the 1.15 mark, but may take time in doing so. The year started with overt and extraordinary USD strength and a little pressure release was always on the cards. Some soul searching is needed before the next move.

EUR/USD touched a two month high yesterday as the sell-off in European debt has continued. USD bears are focusing on 1.15 in the short term and this may provide an opportunity for the dollar to find an anchor point.

GBP/USD is at the highest level in six months, with politics no longer a weight on sterling. The data calendar may provide additional volatility for the pound next week; inflation is set to remain poor courtesy of the strong pound while the Bank of England minutes may see a couple of members vote for a rate rise.

Overnight a sell-off in oil, gold and copper prices has allowed some stability back into USD. The psychological change however around US data is all-telling. Two months ago it was a case of “how strong is it going to be?” while now it is more a case of “how low can it go?”

UK and US data to perge

Today’s industrial production and consumer confidence numbers are a case in point. Do we see momentum recover from a weather hit Q1? Will cuts in oil production continue to weigh? Has the strong dollar limited export demand? I think the last two questions are key and we could easily see a slide in industrial momentum as we have seen in consumption into Q2.

UK construction output is due at 09.30. While construction was the major laggard for Q1, output is expected to have rebounded higher in March. Recent noises from the industry – that deals, investment and spending would be held over until after the election – have faded following last Friday’s decisive outcome. A 1% increase in output in March would go some way to unwinding the negative contribution construction made to growth in the first three months of the year. Expectations are that Q1 GDP will be revised higher to 0.4/0.5% from the 0.3% initial reading.

Elsewhere today is a quiet day and we anticipate some sideways trade in markets into the weekend.

Indicative Rates

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