Released last Friday, January’s employment figures sent the greenback to higher ends, temporary at least. EUR/USD trades at 1.2453 (-0.43% since Thursday February 1st 2018) and USD/JPY 109.95 (+ 0.50%) while GBP/USD remains at 1.4120 (-1.01%). January NFPs came in at 200’000 (versus 180’000 expected and 160’000 in December 31st 2017), while the unemployment rate held steady at 4.1% (confirmed for December 2017 and lowest since September 30th 2000), both providing strong signs of economic growth. Wage growth rose 2.9%y/y in the last month, the highest rate since 2009m which is of good omen for the inflation outlook. However, it seems that those positive developments have translated into a stronger greenback, yet. The Dollar Index fell 3.29% since the beginning of the year, its biggest drop in two years!
This phenomenon is mostly due to the sharp appreciation of the EUR and JPY that account for 57.60% and 13.60% (71.20% in total) within the DXY composition. As investors anticipates a tighter monetary policy from the ECB, which translates into buying pressures on the single currency. We remain confident that this uptrend will continue, which could send the pair to 1.28 during the year. Similarly, investors have taken a slight more hawkish stance regarding the Japanese yen amid Kuroda’s optimistic speech at the WEF, speculating that the BoJ will abandon its extreme monetary policy earlier-than-expected. The yen kept strengthening against USD (USD/JPY 109.98, -2.35% YTD). We expect that the BoJ will maintain its dovish stance as Japan’s inflation remains at 1% (below 2% target) and Japanese consumer spending stays below expectations (-0.10% as of December 31st 2017).
By Vincent Mivelaz