After taking a breather on Thursday, the US dollar extended gains Friday amid easing rate concerns. US treasuries were better bid, which sent yields lower. The 10-year fell 3bps to 2.90%, while on the short-end of the curve the 2-year one was unchanged around 2.245%. Since the beginning of the week, the buck has extended gains higher against all G10 currencies, making the biggest gains against the Swedish krona (+2.25%), the Norwegian krone (+1.30%) and high quality commodity currencies such as the Canadian, New Zealand and Australian dollar (+1.20%, +1.10% and +1%, respectively).
With the exception of the publication of the January FOMC minutes on Wednesday, which didn’t really bring new information, it was a quiet week. However, several Fed members will have the opportunity to expose their view on the US economy and monetary policy today. Dudley and Rosengren will speak on Fed Balance Sheet, while Williams will speak on the US economic outlook. The three of them are voting members, so their opinion matters.
Next week will be busier in terms of economic data will the publication of January new home sales on Monday, wholesale inventories, durable goods orders for January on Tuesday, an update of Q4 personal consumption and GDP growth on Wednesday and personal income and spending as well as PCE for January on Thursday. The latter is by far the most anticipated report. Indeed, over the last few weeks market participants were quite nervous about a potential acceleration of inflation, since it could force the Fed to accelerate tightening, which could ultimately cap economic growth.
EUR/USD has stabilised around 1.2110 as selling pressure may have lessen for now. The currency pair is right in the middle of its monthly range (1.2165-1.2555), while the RSI has return at 50. We do not expect much movement today; however, this evening speeches from Fed members could trigger sharp movement, especially should they hawkish/dovish comments about the current situation.
By Arnaud Masset