The dollar strikes back
The US dollar finally took its revenge as it reversed the last few weeks’ losses against all its G10 peers. On last trading day session of the week, the buck rose 0.25% against the euro, the Kiwi and the Aussie. Safe haven currencies such as the Swiss franc and the Japanese yen have better resisted the pressure.
Investors are finally feeling more confident about the US economic outlook, and especially inflation perspective, as the Fed is moving closer to its target. Fed members seem confident that they can stick to their gradual tightening process without running the risk of a triggering an unexpected rise in inflation. Indeed, according to the data, the job market is doing just fine, growth is solid – even though a slight slowdown is expected in the first quarter – and most importantly, inflation is moving in the right direction. Against such a backdrop, investors took a more bullish stance on the greenback and started to reduce their exposure to US bonds.
Looking ahead, the economic calendar is busy for the day, especially in the US. Traders will be watching the advance estimate of first quarter GDP growth, personal consumption, Core PCE and Michigan Sentiment Index in the US. The UK’s first quarter GDP growth is also due for release today, while in Japan the BoJ already release its quarterly economic outlook report earlier this morning.
Next week will also be a busy one. On Monday, we’ll get March personal income and spending. April’s ISM manufacturing will be publish on Tuesday, while the Fed will communicate its decision about interest rate on Wednesday. Finally, ADP and NFP figures will also be released next week (Wednesday and Friday, respectively).
Regarding the Fed interest rate decision, it will be most likely a non-event as there won’t be any press conference. The statement may experience some changes but nothing important. We maintain our positive stance on the greenback but we believe it is time for a consolidation, especially after such a sharp rally.
Riksbank monetary decision doesn’t support the krona
Weakening against the single currency since August 2017, the Swedish krona takes a kicking, especially since the beginning of the year, depreciating by 9.62% and 6.78% respectively. Yesterday’s Riksbank monetary policy decision did not help appease the wound, as March inflation data remained weaker than expected for central bankers, given at 0.30% and 1.90% (prior: 0.70% and 1.60%) on month-over-month and year-over-year basis. Accordingly, Riksbank’s decision to maintain its key rate at -0.50% (unchanged since February 2016), came in disagreement with the market who was expecting a 25 basis points rise, pushing the EUR/SEK pair higher by 1.36% this week.
As the structural economy recovers from recent lows, with a recovery in March trade balance who remained in negative territory for three months in a row, an upturn in domestic consumption and improving manufacturing confidence, we therefore would assume that the Riksbank normalization policy start won’t take long, unless the ECB maintains its stance, a very likely scenario since Draghi’s statement during the same day on the EU economy momentum slowdown.
The EUR/SEK pair trades at its September 2009 level, given at 10.5446. There is still a long way to go before reaching strong resistance at 11.16 (23/06/2009 high). The pair is heading along the 10.55 range in the short-term.
