As it was expected, the Dollar Index (USDIDX) continued to grow on Friday, on the next decline in redemption of government bonds. Besides it all the economic data in the U.S. were better than the preliminary forecasts. Consumer spending in December rose by 0.4 %. In the fourth quarter, this figure showed the maximum increase within the last three years. Today at 15-00 GMT (0), we expect the index of business activity in the manufacturing sector of the U.S. in January and construction costs for December. In our opinion, the forecasts are negative for the USDIDX. The dollar index is slightly corrected downwards in the morning.
On Friday, there were the negative macroeconomic data on the Eurozone. This caused the weakening of the euro (EUR/USD) to its lowest level in two months. The inflation in January I yearly terms was below the prior forecast and was at 0.7 %. Now Forex market participants do not exclude the ECB monetary policy easing in order to reduce the deflation risk. This means a possible reduction in the discount rate or an emission increase. Recall that the next ECB meeting will be held on Thursday. Today at 9-00 GMT (0), we expect Purchasing Managers' Index in the European Union to be released. It is able to affect the euro, if the data do not match with a neutral outlook.
Due to weakening of the euro against the U.S. dollar, the same dynamics was showed by the other European currencies: the British pound (GBP/USD) (fall on the chart) and Swiss Franc (USDCHF) (growth on the chart). Note that market participants do not exclude future rate hikes in the UK and reduction in the EU. Due to this, the difference in yield of two-year government bonds of these countries peaked within three and a half years. The Pound rose against the Euro to the highest level of the year. If the ECB does not lower the rate from 0.25 % to 0.1% this week , it can help the pound weakening. The BOE meeting will be also held on February sixth, but unlike the EU, changes in rates are not expected. Note that today, at 9-30 GMT (0) we expect the Purchasing Managers' Index in the UK as well as on the EZ but a little later. The forecast, in our opinion, is a neutral.
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Early tomorrow morning at 3-30 GMT (0) the Reserve Bank of Australia meeting will be held. It is expected that it will keep interest rates at the current level of 2.5%. We have previously noted, the Australian dollar (AUD/USD) has now stabilized along with the currencies of developing countries. Today's data on real estate market in Australia were neutral. The number of building permits fell in December by 2.9%. This is more significant than it was expected. The number of new homes is still by 21.8 % higher than it was in December 2012. Forex market participants fear the bubble formation in the Australian real estate market. In this case, the Reserve Bank of Australia will tighten the monetary policy.
The Japanese yen (USD/JPY) stabilized on anticipation of the Kikuo Iwata’s speech, which will be held on February 6th. He'll tell us about the volume of Japanese government bonds redemption and other parameters of the monetary policy.
Canadian GDP for November increased by 2.6%, as it was expected. Nevertheless, market participants felt that it is not bad. TheCanadian dollar (USD/CAD) slightly strengthened. It looks like a downward correction after a sharp rise in January.