02.02.2017 Daily Market Analysis

The US dollar (USD) posted a mixed performance on the first day of February trading amid upbeat data and the Federal Reserve’s general vague stance.

US ISM Manufacturing PMI data printed 56.0, higher than the expected 55.0, while Crude Oil Inventories showed a build of 6.5M, against the expected 2.6M. ADP also forecasted Non-farm employment change of 246K, much better than the expected 165K. But it was the Fed’s largely neutral stance that triggered the mixed performance of the USD. Investors were looking for a solid confirmation that three rate hikes would be implemented this year, but all they got was a lukewarm statement. While the Fed recognized improved labor conditions as well as both consumer and business sentiment, they also highlighted the low inflation levels and made mention that this only warranted ‘gradual tightening’. US Unemployment claims figures will be released today ahead of tomorrow’s NFP data, but the unambiguous USD fundamentals could pile more pressure on the world’s reserve currency.

Meanwhile, the British pound (GBP) was the best performer yesterday and it will be the currency to watch today. The only major GBP data yesterday was the Manufacturing PMI, which at 55.9, came in as expected. Today, UK Prime Minister May will be publishing a white paper detailing her Brexit exit plan, but the focus will be on the Bank of England. The BOE will be delivering its latest monetary policy announcement and quarterly Inflation report. BOE Governor Carney will also be issuing a speech later on. Since the BOE’s last meeting, the UK has witnessed improvements in various macroeconomic metrics, and they are widely expected to increase their Inflation forecast. In the last meeting, Carney said that Inflation ‘would go up and down’, but if the BOE is forthright this time, the GBP will enjoy another day in the sun.

On the other hand, the euro (EUR) printed losses against the USD. There was no major market-moving data from the Eurozone yesterday, and that will be the case today as well. Thus, the common currency will again take the cue for its price action from the GBP and USD.

All commodity currencies lost ground against the greenback, with the New Zealand dollar (NZD) leading the way. The NZD drifted lower as investors continued to price in the full impact of the weak Employment numbers released earlier this week. The Australian dollar (AUD) witnessed low volatility as Chinese Banks remained closed in observation of the Spring Festival, but a tumble was avoided as gold prices remained resilient. The Canadian dollar (CAD) edged slightly lower as crude oil prices stayed resilient, despite increasing crude oil stockpiles in the US. There is no major data expected from the commodity countries today, with their respective currencies set to follow the cue provided by the USD.