The US dollar had an excellent week, rising on doubts about the fiscal cliff deal and the not-so-dovish meeting minutes from the Fed. Rate decisions in the UK and the EU as well as US unemployment claims and Federal Budget Balance are the highlights of this week. Here is an outlook on the major market movers ahead.
Non-Farm Payrolls came out within expectations: 155,000 extra jobs, simillar to the 161,000 registered in November, The unemployment rate increased now stands at 7.8%, still far from the Fed’s 6.5% target for changing policy. The meeting minutes from the Fed indicated that some members wanted to a shift in monetary easing at the end of 2013. This not only helped the dollar, but could have also changed the reaction to US indicators: back to the old normal. After the very sharp fall of the yen, many ask if it’s time for a pullback. The focus will return to the old continent now. Let’s Start
- UK rate decision: Thursday, 12:00. The BOE isn’t likely to cut the interest rate in the near future nor in the second half of 2014. When Carney takes control in mid 2013, we could see a more hawkish approach, especially if inflation picks up once again. A rate hike could be seen in early 2014. For the upcoming meeting, no change in policy is expected. The economic situation in the UK isn’t good, with a danger of a “triple dip” recession. However, not all data is bad, and the BOE could wait for another month before announcing new QE.
- EU rate decision: Thursday, 12:45. press conference at 13:30. There is more than a 50/50 chance that the ECB will cut the main interest rate from 0.75% to 0.50%, but this isn’t priced in. With PMIs pointing to more weakness in manufacturing and with a weak holiday season, the ground is ready for the ECB to act. In addition, inflation is almost at the 2% target, and is forecast to slide. Mario Draghi will probably refrain from pushing the deposit rate into negative territory and leave this policy option to a future deterioration. It’s important to note that bond yields of Spain and Italy are significantly lower now. The negative rate ammunition could be kept dry for another round of the crisis. If the ECB does announce a negative deposit rate, this would be another step in the “currency wars” and the euro could tumble down.
- US Unemployment Claims: Thursday, 13:30. The number of Americans seeking unemployment benefits increased unexpectedly to 372,000 from 362,000 in the preceding week, but the increase may be due to the winter holidays distorting readings for the second week. The job market in general is in a positive condition with increased hiring and fewer layoffs. A drop to 161,000 is expected now.
- Swiss inflation data: Friday, 8:15. Consumer prices dropped an unexpected 0.3% in November reducing the headline annual inflation rate from minus 0.2% in October to minus 0.4%, its first fall since June. Energy products were the main cause for this decline. This ongoing trend could lead to deflation in case domestic demand weakens in the coming months. A decline of 0.1% is forecasted.
- US Trade Balance: Friday, 13:30. US trade deficit widened in October to $42.2 billion from $40.3 billion in September following a sharp drop in exports outweighing the decline in imports, further evidence of the slowdown in global growth. Economists expected a wider deficit of $42.7 billion. The decline in exports indicated weaker demand from Europe to Asia and slower imports signals slower IS growth. A small improvement to a deficit of 41.1 billion is forecasted this time.
- US Federal Budget Balance: Friday, 19:00. The US government’s deficit widened in November to $172.1 billion, well above predictions. However the deference is due to calendar timing of payments. The Treasury claims the budget is running only slightly worse than last year, at $269 billion vs $266 billion. A major improvement to $22.1 billion is expected now.
*All times are GMT.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
For those of you who haven’t seen it, here are the 5 Most Predictable Currency Pairs – Q1 2013
Further reading:
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar
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