The US dollar got off to a subdued start with America’s central bank taking centre stage. The Federal Reserve last week knocked the dollar into a lower orbit after minutes from its last meeting voiced concern over the shape of the world economy, and the potential hit to the US economy from the strong dollar. Remarks on Thursday from a Fed president, James Bullard, saw potential scope for the central bank not to end its quantitative easing (QE) programme later this month as it had previously planned. More cautionary remarks from Fed Chair Janet Yellen would cloud the outlook for tighter policy and cement a second straight down week for the US currency. Still, downside risk for the dollar is seen limited by America’s rosier fundamentals, particularly following news on Thursday that US jobless claims fell to the fewest in 14 years, which signalled a job market gaining strength. Despite the weak state of the European economy, the euro held near three-week highs against the greenback. Sterling rebounded from 11-month lows after its slide petered out. Heavy selling in markets abated, buoying the Australian and Canadian dollar.
Euro
The euro hovered near three-week highs against the greenback. Markets’ rethink on the road ahead for US monetary policy has amounted to some relief for the beleaguered single currency. Doubts have surfaced whether the Federal Reserve would press on with plans to end QE later this month. Moreover, many have pencilled in a Fed rate hike for deeper into 2015. Nevertheless, the weak state of Europe’s economy should make positive traction a tough slog for the euro. The euro in the coming week will have to contend with a fresh batch of PMI readings from across the bloc. Another round of disheartening data would stand in contrast to the brighter outlook in the US and weigh on the euro.
Sterling
Sterling emerged from 11-month lows, but its move higher could soon be undercut by largely bearish sentiment toward the UK currency. Renewed doubts about the Fed’s next steps have weighed on the dollar, boosting the pound. Sterling’s move lower this week was reinforced by news that area inflation cooled to the lowest in five years. Such a benign reading takes substantial pressure off the Bank of England to raise rates any time soon. Big risk events await the pound next week in BOE minutes on Wednesday, retail sales on Thursday and the initial estimate of Q3 growth on Friday.
US dollar
Not much immediate reaction for the dollar to a good batch of housing data, keeping it lower against the euro but higher against the yen. The data speaks to America’s rosier fundamentals, which at the very least should help limit downside risk for the dollar. More housing numbers wait next week along with a midweek reading on inflation.