Forex Major Currencies Outlook (Feb 21 – Feb 25)

USD 

Retail sales had a strong start to a new year. They came in at 3.8% m/m vs 2.5% m/m as expected. Control group, it is used for GDP calculation, came in at 4.8% m/m. It is important though to note that retail sales are not adjusted for inflation, so when prices of goods rise if people buy the same amount of goods as previous month, retail sales will print a higher number. Non-store retailers, online, showed the biggest rise followed by furniture stores and auto dealers. On the other hand, sales declined at gasoline stations and for sporting goods. After the FOMC minutes showed that there was no serious talk about a 50bp rate hike in March CME’s FedWatch Tool now puts a probability of a 25bp rate hike at 71.2%. 

This week we will have second estimate of Q4 GDP as well as Fed’s preferred PCE inflation data. 

Important news for USD: 

Thursday:

• GDP

Friday:

• PCE 

EUR 

February ZEW survey showed improvement in German current conditions as well as expectations reflecting the excitement about leaving the pandemic restrictions behind and indicating growing optimism among the investors. EU expectations, on the other hand, slipped for the first time in three months. Second reading of EU Q4 GDP was unchanged at 0.3% q/q and 4.6% y/y. 

This week we will have preliminary PMI data for February. 

Important news for EUR: 

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France) 

GBP 

Employment report showed claimant counts dropping by -31.9k in January. The ILO unemployment rate for December held steady at 4.1% while the 3-month employment change, up until December, came in at 38k indicating tight labour market conditions. Average weekly earnings ticked up to 4.3% from 4.2% the previous month. Inflation in January ticked up to 5.5% y/y from 5.4% y/y in December, a new 30-year high, with core rising a bit higher to 4.4% y/y vs 4.2% y/y the previous month. Month-over-month figure was -0.1% m/m which may indicate that price pressures will slowly start to ease. BOE has said that April will represent peak in inflation, at above 7%. They will continue with the rate hike in March after these reports. 

This week we will have preliminary PMI data for February. 

Important news for GBP:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

RBA meeting minutes from the February meeting showed board’s willingness to be patient and monitor how the various factors impact inflation. They acknowledged that inflation had picked up more quickly than expected, but it was too early to conclude that it was sustainably within the target band. They still see inflation moderating when supply issues get resolved. Employment report for January showed employment change at 12.9k vs 0k as expected. The unemployment rate remained at 4.2% while participation rate ticked up to 66.2% from 66.1% in December giving additional strength to the report. Full-time employment fell -17k and it will take away some shine from the report while part-time employment rose 29.9k. Markets were completely unfazed by the report as Russia-Ukraine tensions were dominating.

PBOC has injected 300bn yuan via a 1 year Medium-term Lending Facility (MLF) and left rate unchanged at 2.85% as was widely expected. 1 year and 5 year Loan Prime Rates (LPR) will be set on February 20. Inflation data for January saw CPI drop to 0.9% y/y from 1.5% y/y in December and PPI continue to decline and come in at 9.1% y/y, down from 10.3% y/y the previous month. The government effects of fighting high input costs are yielding results as PPI returned to the levels last seen in July of 2021.

This week we will have wages data. RBA wants to see them north from 3% in order to start raising interest rates.

Important news for AUD:

Wednesday:

• Wage Price Index

NZD

The second February auction saw dairy prices rise by 4.2%. This is a third consecutive auction where dairy prices are rising by more than 4%. Terms of trade keep on improving. PPI for Q4 came below expectations, potentially signalling easing of inflation pressures. Input PPI came in at 1.1% q/q vs 1.6% q/q as expected and in Q3 while output PPI came in at 1.4% q/q vs 2.3% q/q as expected. It was at 1.8% q/q in the previous quarter.

This week we will have RBNZ meeting as well as Q4 retail sales. Rate hike of 25bp to 1% is fully priced in.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

Thursday:

• Retails Sales

CAD

Inflation data in January set a new record held by December’s reading which indicates how fast and far inflation is moving. Headline CPI came in at 5.1% y/y vs 4.8% y/y the previous month. All core readings returned new highs with common at 2.3% y/y, median at 3.3% y/y and trimmed at 4% y/y. BOC stated that it is ready to raise interest rates and with inflation running rampant we can pencil in March meeting as certain. Now the question arises if it will be a 25bp raise or a 50bp raise.

JPY

Preliminary Q4 GDP reading came in a bit weaker than expected at 1.3% q/q vs 1.4% q/q and 5.4% y/y vs 5.8% y/y as expected. Both of the previous readings were revised higher so that can explain small misses to the estimates. Private consumption improved to 2.7% q/q from -0.9% q/q in Q3 and was higher than 2.2% q/q as expected. Business investment also improved to 0.4% q/q from -2.4% q/q the previous quarter. Net exports contributed to GDP reading with 0.2pp. GDP deflator, an indication of inflation, fell to -1.3% from -1.2% in Q3 thus showing well known deflationary pressures. Inflation will increase in the coming months due to base effects, but it is still very well below levels seen in other economies around the globe. Inflation is moving in the opposite direction from the rest of the world. January CPI came in at 0.5% y/y, down from 0.8% y/y in December while ex fresh food and energy category dropped to -1.1% y/y, a new decade low. High energy prices are the only thing keeping the headline number in positive territory.

CHF

SNB total sight deposits for the week ending February 11 came in at CHF725.1bn vs CHF725bn the previous week. Virtually unchanged as markets expect two rate hikes this week from ECB and thus pushed EURCHF toward the 1.06 level during the wee. The announcement of imminent Russian invasion of Ukraine on last Friday lead to Swissy strength, as safe haven. If the situation escalates it may lead to unwanted Swissy strength so SNB will be pressed to act.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}