The U.S. dollar is lower against major pairs only appreciating against the Swiss franc (CHF) and the Japanese yen (JPY). The greenback got a small boost from the release of the U.S. non-farm payrolls (NFP). The United States added 148,000, well below expectations but with the hourly wages rising 0.3% but that was not good enough to counter positive economic indicators released in Europe and the stronger jobs report in Canada.
- UK monthly manufacturing production forecasted to rise by 0.3%
- US inflation could continue positive trend after NFP
- US retail sales expected to show strong December gains
The euro/U.S. dollar (EUR/USD) currency pair advanced 0.34% during the week. The single currency is trading at 1.2046 after economic data in Europe supported the euro. German retail sales beat the 1.0% improvement forecast with a 2.3% advance. Inflation estimates in the European Union were flat at 1.4%, with the core falling slightly to 0.9%. Although lower than expected the fall in inflation validated the guidance from the European Central Bank (ECB). Without pressure from rising inflation the ECB can keep the German and Dutch members at bay with their calls urging for a quicker end of quantitative easing. German retail sales alongside inflation data released last week show why German policy makers are worried given the strength of the currency.
The awaited release of the U.S. nonfarm payrolls (NFP) did little for the U.S. dollar as fewer than the 190,000 jobs were added (148,000) and although there were some positive signs of inflation with hourly wages climbing 0.3% it was not enough. Employment has been one of the strongest pillar of the U.S. economic recovery after the 2008 crisis, but as time wears on there are fewer people available to be employed so the gains will be limited. Inflation remains subdued and the U.S. Federal Reserve is divided on the pace of rate hikes in 2018.
There are few probabilities of a rate hike in January, with a lot of the anticipation surrounding the March Federal Open Market Committee (FOMC), which will be the first of Jerome Powell as chair of the central bank.
The economic calendar for the EUR/USD will be focused on U.S. retail sales and inflation that will be released on Friday, Jan 12 at 8:30 am EST. Inflation is expected to come in lower putting some pressure on the Fed to slow down its path of rising rates, but retail sales are anticipated to show an improvement in December.
The solid job report is another sign that the Canadian economy is going strong. Governor Poloz has not denied that interpretation but he was also careful to keep a neutral tone when he spoke in December. The market has now moved to predicting a rate hike in the January 17, but it will be Stephen Poloz who makes the final call. Heavy in his mind will be the fate of NAFTA. Poloz has shown that he is not afraid to be proactive as he cut interest rates twice in 2015 to shield the Canadian economy from the worst of the oil price crash. With the efforts form the Organization of the Petroleum Exporting Countries (OPEC) and strong growth, those 50 basis points were added back to the benchmark rate.