US Dollar Strengthens Ahead of Price Index, Data Release

The US dollar rose against its major trading partners early Friday, except for a decline versus the euro, ahead of the release of home construction and producer price index data for January, followed by preliminary University of Michigan consumer sentiment data for February.

Sterling faces an event risk of a pre-election budget in early March. Any misjudgement of fiscal risks by the UK Chancellor could see sterling suffer, according to ING.

Emerging markets have largely been characterised by low volatility. Polish and Hungarian currencies should continue their diverging performances. South Africa’s rand faces a big event risk from the budget this month.

Analysts think investors will favour the Mexican peso and perhaps now the Brazilian real too. And Asian FX should stay soft until global rates fall decisively again or China surprises with stimulus.

Updates to gross domestic product Nowcast estimates from the Atlanta and St. Louis Federal Reserve Banks is expected around midday. Markets are closed Monday for the Presidents’ Day holiday.

Fed Governor Christoper Waller said Thursday he does not expect the US dollar to be replaced as the world’s reserve currency any time soon or lose its primary place in trade and finance, in contrast to concerns that the dollar is close to being replaced by other methods of payment, including digital currencies.

Fed Vice Chair for Supervision Michael Barr is set to speak, followed by San Francisco Fed President Mary Daly. Both vote on the Federal Open Market Committee in 2024.

A quick summary of foreign exchange activity heading into Friday showed that the USDEUR rose to 1.0778 from 1.0773 at the Thursday US close and 1.0736 at the same time Thursday morning.

For the FX benchmark EUR/USD, that probably means that the downside is limited to the 1.05/1.07 area this month; ING said in a note today, recalling that January and February are typically strong months for the dollar.

“We continue to expect a modest rally this summer and EUR/USD to end the year somewhere near 1.15. We will be discussing more on US election scenarios over the coming months.

Meanwhile, there are no Eurozone data on Friday’s schedule.  ECB member Isabel Schnabel said overnight that the Eurozone’s low productivity rate could slow the decline in inflation, Reuters reported. The next ECB meeting is set for March 7.

GBPUSD fell to 1.2591 from 1.2600 at the Thursday US close but was up from a level of 1.2545 at the same time Thursday morning. UK retail sales rebounded in January after December decline. The next Bank of England meeting is set for March 21. BoE member Huw Pill is scheduled to speak today.

USDJPY rose to 150.2073 from 149.9397 at the Thursday US close and 150.0567 on the same Thursday morning. Japanese consumer sentiment improved in February, data released Thursday evening showed. The next Bank of Japan meeting is set for March 18-19. ING said risks are building that USD/JPY pushes higher still. EU to Invest €37m in Nigeria’s Power Sector-Ambassador

USDCAD rose slightly to 1.3475 from 1.3465 at the Thursday US close but was below a level of 1.3541 at the same time Thursday morning. Canadian wholesale sales data for December are scheduled to be released. The next Bank of Canada meeting is set for March 6.

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