The most important events this week that could weigh on the movements of major currencies will be the U.S. non-farm payrolls, FOMC statement and manufacturing data from major economies.
The U.S. dollar failed to rebound from its record lows the previous week, as fears of further protectionist stance from the U.S. reignited concerns of trade war.
The dollar hovered near three-year lows at the end of last week, as President Donald Trump imposed a 30 percent tariffs on washing machines and solar panels made outside the United States, raising concerns of a trade war with China and South Korea.
Steven Mnuchin, US Treasury secretary, hailed the trade benefits stemming from a weak dollar, adding further pressure on the green currency, whilst Trump’s hawkish remarks about the dollar proved to be short-lived.
It seems that investors are convinced that the U.S. administration is preferring a weak currency to gain trade benefits over rivals, especially major economies in Asia.
On the economic front, the U.S. will release its famous non-farm payrolls for the month of January, which may signal a job gain of 195,000 and steadiness in unemployment rate at 4.1 percent.
Eyes will also focus on the interest rate decision the FOMC statement from the Federal Reserve, amidst expectations of seeing no change in the borrowing cost.
While the first rate hike is highly predicted to occur in March, investors will look for any clues in the Fed’s statement.
The euro maintained its bullish direction last week, reporting its sixth straight weekly gain versus the U.S. dollar, despite concerns from ECB President Mario Draghi regarding the exchange rate of the euro.
“The concern was broader than simply the exchange rate, it was about the overall status of international relations right now.” Draghi mentioned during the press conference following the ECB policy meeting last week.
Meanwhile, investors predict the strong growth in the euro area would push inflation higher towards the ECB 2 percent target and therefore policymakers could start trailing the Fed’s monetary tightening path.
Investors will focus this week on the final manufacturing PMI for January, which could more confidence the strong start of the year could encourage the ECB to start monetary tightening.
However, stronger confirmation is needed from the euro area’s CPI flash estimate, as it will reflect the inflation path during the first month of the New Year.
The flash estimate may show a retreat to 1.3 percent increase in the year ended January from a previous of 1.4 percent.
Further retreat in inflation from the ECB’s goal of near 2 percent could put the euro under pressure and force it to start a downside correction.
The pound sterling gained against the dollar last week, taking advantage of the weakness in the dollar, where it also took cues from strong growth report showing a better than forecast expansion in the last quarter of 2017.
This week, the pound sterling is likely to be affected by the U.K. manufacturing and construction PMI data for January.
Also, BOE Governor Mark Carney will testify before the House of Lords Economic Affairs Committee, where his remarks could affect the movements of the sterling.
Gold advanced the previous week to a 17-month high, yet it faced some sell off on profit taking from investors after the stellar start for the metal this year.
The shiny metal rose last week amid the persistent weakness in the dollar, recording its sixth weekly gain in seven weeks.
Some analysts predict that gold would continue its rally this year, where the next station would be $1400 an ounce.
Regarding oil, crude oil strengthened to trade at the highest level in more than three years last week, benefitting from the sharp drop in the dollar.
However, oil prices could face downside pressure from the rising U.S. output that could soon reach 10 million barrel per day, set to be head to head with top producers such as Russia and Saudi Arabia.
crude stockpiles probably plunged 1.6 million barrels in the week ended January
26, the EIA government report may show this week.