The US Dollar has so far, enjoyed a strong month of February. The Greenback has made healthy gains against all of the major currencies at a time when economic uncertainty should have pushed the US Dollar lower.
Retail Sales – a key indicator of the US economy – fell by the largest single amount for nine years in December, sending US Stocks lower and the USD higher. However, alarm bells are starting to ring for analysts.
The US economy, the worlds largest economy, is nearly 70% consumer spending driven. Retail sales falling by such a large amount during one of the busiest times of the year, is not a good sign at all.
Compounding concerns over the health of the US economy and the strength of the US dollar, was news that the number of US citizens filing applications for unemployment benefits increased last week. The four-week moving average of claims is now at its highest level for more than a year. Initial Jobless Claims surged to 253,000 in the week ended January 26th, a near 18 month high.
The China Effect
There is much speculation that the US will officially extend the March 1st trade deal deadline with China. With the March 1st deadline just 2 weeks away, investors are almost banking on President Donald Trump’s comment that trade talks are “going well” as an indication of genuine progress between the world’s two largest economies and not (another) set of false promises. President Trump has said that he is open to extending the deadline with China, as well as even being open to removing the tariffs should a deal is done. However, those familiar with the volatility of Trump’s decision making progress, will be fully aware that until an agreement is signed, sealed and delivered events and direction could change in an instant.
The Week Ahead for the USD
The week ahead is a relatively quiet one on the economic calendar. There are no important monetary policy announcements or key US economic reports due to be released in the coming week. This means that the weak data releases from the tail end of last week – the large decline in retail sales and the rise of jobless claims, will linger on investors minds and carry on this.
Expect a more cautious approach to the US Dollar this week. A slow week ahead reports-wise and a US Holiday thrown in, should see the Dollar bulls kept in check.
