US Dollar Slumps as Attempt to Resolve Government Shutdown Fails

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  • AUD Exchange Rates Recover as Impact of Jobs Disappointment Fades – Weaker US Dollar shores up Australian Dollar
  • Pound Falters as UK Reported Retail Sales Fail to Impress – Brexit-based optimism fades
  • Lack of Resolution to US Government Shutdown Drags on US Dollar – Economic impact of political disruption continues to mount
  • Weaker German Business Optimism Not Enough to Extend Euro Losses – Signs of higher inflation may boost single currency

Australian Dollar Recovers Ground

The mood towards the Australian Dollar improved ahead of the weekend, in part thanks to the relative weakness of the US Dollar. While markets maintain a cautious outlook on the global economy the risk-sensitive ‘Aussie’ was still able to push higher on Friday. As the impact of the disappointing December labour market data faded this gave AUD exchange rates an opportunity to recover some of their lost ground.

Any increase in market risk appetite today may offer the Australian Dollar a fresh boost against its rivals.

Underwhelming Reported Retail Sales Dampen Pound Appeal

GBP exchange rates were unable to maintain their steam on Friday, even though markets remain confident that a no-deal Brexit is becoming less likely. January’s CBI reported retail sales index gave investors little incentive to favour the Pound over its rivals, meanwhile. As the index fell short of forecast, only rebounding from -13 to 0, this provoked fresh worries over the underlying health of the UK economy.

As markets brace for the next parliamentary vote speculation over Brexit looks set to keep the Pound under pressure.

Euro Shakes Off Easing German Business Confidence

January’s German IFO business sentiment survey did not paint an encouraging picture of the domestic outlook. As confidence continued to decline across the board, with both the current assessment and expectations indexes muted, the appeal of the Euro was limited. This weaker performance from the Eurozone’s powerhouse economy leant extra weight to the European Central Bank’s (ECB) recent dovish comments. Even so, a softening US Dollar offered a boost to EUR exchange rates.

An uptick in the Eurozone M3 money supply for December may give the Euro a fresh rallying point, as a higher reading would point towards greater inflationary pressure.

Ongoing Government Shutdown Weighs on US Dollar

After the defeat of both the Republican and Democratic bills designed to halt the US government shutdown the mood towards the US Dollar soured. With no end to the longest government shutdown in US history in sight USD exchange rates were left to trend lower across the board. As the release of fresh US data was delayed once again, thanks to the ongoing political stalemate, this limited the appeal of the US Dollar further.

Unless there are signs of progress towards the resolution of the shutdown the upside potential of USD exchange rates could prove limited this week.

Muted Oil Prices Limit Canadian Dollar Support

Oil prices struggled to find any particular direction during Friday’s European trading session as worries over increasing US production persisted. This limited demand for the commodity-correlated Canadian Dollar, even though Brent crude continued to hold above the psychologically important US$60 per barrel mark. With markets still concerned by the outlook of the global economy CAD exchange rates struggled to find any positive momentum.

With Canadian data thin on the ground in the first half of the week the Canadian Dollar looks set to remain on the back foot.

New Zealand Dollar Strengthens Ahead of Trade Data

Confidence in the New Zealand Dollar improved on Friday, even though worries over the global growth outlook remain. NZD exchange rates largely benefitted from the weakness of the US Dollar, especially as the Federal Reserve looks likely to keep interest rates on hold in the months ahead. Even though the New Zealand economy remains weaker than investors would like this was not enough to prevent the NZD recovering ground ahead of the weekend.

Ahead of tomorrow’s trade data, however, the New Zealand Dollar could experience another bout of volatility.

Data Releases

January 28th 20:00 EUR Eurozone M3 Money Supply (YoY) (DEC) 3.8%

Post by TorFX

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