Friday's producer price inflation numbers came in higher than expected at 0.3% in January, versus a reading of -0.1% in December versus an expectation of 0.1%. Similar to the reaction following the higher-than-expected consumer price index numbers last Tuesday, USD gained immediately off the back of the data, but was unable to keep hold of the gains by the end of the day.
*Daily move - against G10 rates at 7:30am, 19.02.24
** Indicative rates - interbank rates at 7:30am, 19.02.24
It will be a quiet start to the week with the US closed to observe Presidents' Day, and so far this morning we are seeing a slightly weaker USD following on from how the currency finished last week. Our attention this week will fall on the release the ECB survey of negotiated wage rates on Tuesday, the minutes from the latest Fed policy meeting (Wednesday), and then to Thursday when we get the release of the flash PMI numbers for February from the UK, EU, and US. We also have final inflation numbers from Europe on Thursday.
Given the uptick in US inflation numbers last week, we would have expected USD to have gained more last week, but the fact that it didn’t suggests that we could see some further consolidation of the gains the greenback has made so far this year and on this basis, GBPUSD and EURUSD could well trade higher ahead of Wednesday's Fed minutes and Thursday's PMI numbers.
Following a failure for USD to gain on the back of the uptick in inflation last week, it seems the greenback is poised for an additional correction of the 2024 uptrend. Data is thin on the ground this week, so it will need plenty of hawkish Fed speak to support the currency we feel.
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