Fundamental Comment

This Week: FOMC minutes, euro area PMI; UK unemployment report

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The most important events this week that could weigh on the movements of major currencies will be FOMC minutes for last month’s policy meeting, euro area private sector surveys and U.K. unemployment report.

US Dollar

After getting some relief following the release of buoyant U.S. NFP report on February 2, the U.S. dollar slipped again last week to the lowest level in three years.

The green currency was set to its biggest weekly decline since February 2016, whilst recording its first weekly decline in three weeks, amid worries about the relapse into a twin deficit dilemma and anticipations that Washington was pursuing a weak dollar.

The impact of a stronger than forecast U.S. inflation data released last week proved to be short lived as fears of huge U.S. budget deficit and current account shortfall dominated investors’ vibes.

This week, eyes will focus on FOMC meeting minutes for January 30-31 policy meeting, as they will look for clues about the first rate hike this year after recent improvement in economic data, especially inflation and wage growth.

Expectations are in favor of seeing three hikes in the borrowing cost, where the first one is likely to be in March.

Euro

The euro gathered momentum last week after falling sharply a week before, taking advantage of the weakness in the dollar.

Investors will continue to monitor business activity surveys for the month of February due this week as it could prompt policymakers to start scaling back stimulus.

Euro area flash composite PMI of manufacturing and services may have remained at its record high of 58.8, which, if happened, could help the euro to resume its advance.

Pound Sterling

The pound sterling also soared against the dollar last week, amid expectations the BOE would be the first major bank after the Fed to raise interest rates this year.

The sterling is also still taking advantage of expectations that the negotiations between the EU and the UK will be successful and will benefit the two economies.

However, there is still some fears from the current high inflation and its impact on consumer spending, especially after the release of a lower than forecast U.K. retail sales the previous week.

Therefore, investors will focus this week on the U.K. unemployment report that includes wage growth for the three months ended December.  

Average earnings for the quarter-ended December probably increased 2.5 percent, similar to the previous reading, which is slower than CPI inflation that is hovering at 3 percent.

The data is likely to weigh on the movements of the pound, along with the U.K. second GDP estimate if it showed any revision.

Commodities

Gold generated strong gains last week, as the weak dollar boosted the appeal of the precious metal as an alternative investment.

However, gold may face downside pressure this week on some profit taking by investors after hitting a three-week high the previous week.

Any attempts from the dollar to rebound could add further pressure on the metal, while a penetration to $1357 an ounce could send prices higher.

Regarding oil, it gained ground on Friday on the fall in the U.S. dollar and advance in global equities that reported their biggest weekly gains in six years last week.

But, still there are some concerns that the rising U.S. oil production would offset efforts by OPEC and Russia to restore balance in the energy market.  

U.S. output climbed to a record high of 10.27 million barrels per day in the week through February 9, the latest U.S. government energy report showed.

U.S. crude stockpiles probably edged up 1.84 million barrels in the week ended February 16, the EIA government report may show this week.

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