The USD began the week on the front foot, following the release of an encouraging services sector inspired composite PMI reading the previous Friday, which posted a 10-month high in January. The global risk-off mood caused by the persistent spread of the Coronavirus in China also lent the USD some support, as demand for safe-haven currencies swelled. Any gains were swiftly checked, however, by soft New Home Sales which unexpectedly dropped for a third straight month in December.
Tuesday proved more fruitful for the USD in terms of economic data. Orders for US durable goods – products designed to last at least three years – exceeded expectations at the end of last year. And US consumer confidence improved in January according to the Conference Board, thanks to an increasingly positive assessment of the labour market and growing optimism about job prospects.
With so much attention on the BoE’s ‘too close to call’ interest rate decision, it was easy to forget that the US Federal Reserve was due to make its own monetary policy announcement. The Fed – which had cut interest rates three times in 2019 – was strongly tipped to leave rates on hold this month and it duly obliged following its latest meeting on Wednesday. The news, combined with the global risk-off mood, propelled the USD to a two-month high against a basket of major currencies. However, it headed in the other direction against the GBP on Thursday, as news of the BoE’s decision to adopt the same course of action as its contemporaries at the Fed began to filter through.
The USD’s stride was checked by the US fourth-quarter GDP figure on Thursday afternoon, which contrasted Donald Trump’s recent rhetoric about America enjoying “an economic boom – the likes of which the world has never see before”. The domestic economy recorded its weakest growth since Mr Trump took charge.
The GBP’s rebound against the USD could be extended by the UK’s long-awaited departure from the EU on Friday. However, any gains may be short-lived because of market expectations and the threat of renewed uncertainty from the ongoing Brexit process
Next week gets off to a fast start for the USD, with a raft of data releases on Monday, including the ISM Manufacturing PMI. The main event for the USD will be Friday’s Nonfarm Payrolls for January, which are forecast to rise by around $11,000.
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