Last Friday (15/01), EUR/USD reached a peak at $1.09834 for the first time in a month on disappoiting U.S. data. The pair closed at $1.09113, up 0.47% compared with the opening price of $1.08614.
Firstly, U.S. economic data was under expectation
Retail Sales and Industrial Production failed to meet the expectations. Core Retail Sales went down 0.1% in December, compared with the speculation of surging 0.1%; Industrial Production also fell 0.4%. Moreover, GDP growth was reported to be slowdown. According to a survey conducted by University of Michigan, inflation expectation reached a low at 2.4%, the lowest since January 2015. Additionally, both manufacturing and service sector of the country have been in the worst situation within 3 years time.
Although labor market has improved significantly, surpassing the Fed’s expectation with more than 200,000 jobs created ech month, it’s not enough to boost up the economy in the context weak consumption and a tendency to saving rather than borrowing as in the last recession. The key engine for economic growth – consumer – stll shows no recovery, it’s hard for other sectors to jump out of the slowdown cycle. This fact bears a burden on the tightening path of the Federal Reserve.
Secondly, oil dipped down to under $30
After a recovery in Thursday, oil price fell back in a downtrend, putting pressure on inflation though lower production cost and consumer spending. Currently, U.S. inflation stands at 1.3%, far from the target 2%. Meanwhile, fundamentals suggest no support for the oil price in a short term. As a result, stocks of energy companies are in dizzy. It’s U.S. unstable stock market, not China, that forces the dollar to go down.
In the interview last week, Director of IMF, Christine Lagarde considered there need to be clearer hint for inflation before the second tightening step. It’s unlikely that Fed would move this March. Pressure on EUR will diminish.
Dollar Index (DXY), measuring the value of the dollar relative to a basket of foreign currencies, plunged 0.4% to the low of 98.42, closed at 98.99.
Analysis of Group If24h