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Forex - Weekly Outlook: February 4 - 8

ForexFeb 03, 2019 05:46
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Investing.com - This week investors will get the chance to hear remarks by a number of Federal Reserve officials after the U.S. central bank caught markets off guard by putting plans for further rate hikes on hold and pledging to be "patient" on further moves.

Having signaled further rate rises as recently as December, the Fed, at its January meeting, scrapped a promise for further rates hikes, citing muted inflation and rising risks to global economic growth.

Market watchers will be tuned in to remarks by Cleveland Fed President Loretta Mester on Monday and St Louis Fed President James Bullard on Friday. Fed Chairman Jay Powell is due to speak on Wednesday, but it is unclear if his remarks will address monetary policy.

Investors will also be looking ahead to President Donald Trump’s State of the Union address on Tuesday. The speech was initially scheduled for Jan. 29, but was delayed as a result of the temporary government shutdown.

Trump looks sure to keep up the pressure for the border wall and may renew calls for infrastructure spending.

Markets in China will be shut for a week for the Lunar New Year holiday, while investors will still be on the lookout for any indications that the trade spat between the U.S. and China is easing.

The Bank of England is expected to keep interest rates on hold at its upcoming meeting on Thursday, amid growing uncertainty over the prospect of Britain exiting the European Union on March 29 with no deal in place.

The Reserve Bank of Australia is also scheduled to hold a policy meeting this week and may signal that interest rates will stay at 1.5% until well into 2021 as the slowdown in China hits the domestic economy.

The U.S. dollar ended flat on Friday, despite an initial move higher, after the U.S. non-farm payrolls report for January showed sluggish wage inflation, underlining the case for the Fed’s patient stance on further rate increases.

The report showed the U.S. economy created 304,000 new jobs, the highest in 11 months, beating forecasts for 165,000 jobs. The unemployment rate, however, rose to a seven-month peak of 4%. Average hourly earnings rose just 0.1%, compared with expectations for a 0.3% increase.

“We had a knee-jerk rise in the dollar based on the strong gain in payrolls as well as the overall solid report,” said Eric Viloria, FX strategist at Credit Agricole.

“But the miss in wages probably reinforces this patient approach by the Fed and that has restrained the dollar,” he added.

Late Friday, the dollar index was trading at 95.30, almost flat for the day.

The dollar was little changed against the euro and the yen, with EUR/USD last at 1.1454 ad USD/JPY at 109.48.

Broader risk sentiment remained somewhat robust after a top U.S. negotiator on Thursday reported “substantial progress” in two days of high-level talks on trade with China.

The greenback is widely expected to weaken this year as the Federal Reserve turns more cautious about rate increases.

“The outlook for U.S. assets remains relatively uncompelling and investors should be shopping for value elsewhere,” said Hans Redeker, global head of currency strategy at Morgan Stanley in London.

“A weak U.S. equity market outlook should keep low-yielders such as the yen and the Swedish crown supported,” he added.

Ahead of the coming week, Investing.com has compiled a list of significant events likely to affect the markets.

Monday, February 4

Financial markets in China will be closed for the Lunar New Year holiday.

Australia is to release data on building approvals.

The U.K. is to publish survey data on construction sector activity.

The euro zone is to release figures on producer price inflation.

The U.S. is to report on factory orders.

Cleveland Fed president Loretta Mester is to speak.

Tuesday, February 5

Markets in China will remain closed for the Lunar New Year holiday.

Australia is to release data on trade and retail sales. In addition the Reserve Bank of Australia is to announce its latest interest rate decision and publish a rate statement.

The U.K. is to release survey data on service sector activity.

The euro zone is to report on retail sales.

The Institute of Supply Management is to release data on non-manufacturing activity.

President Donald Trump will deliver the State of the Union address before Congress.

Wednesday, February 6

Markets in China will remain closed for the Lunar New Year holiday.

RBA Governor Philip Lowe is to speak at an event in Sydney.

In the euro area, Germany is to produce data on factory orders.

Canada is to publish data on building permits.

Fed Chairman Jerome Powell is to speak at an event in Washington.

Thursday, February 7

Markets in China will remain closed for the Lunar New Year holiday.

New Zealand is to release its latest employment report.

Germany is to publish figures on industrial production.

The EU is to release its economic forecasts for the next six months.

The Bank of England is to announce its latest interest rate decision and publish a rate statement.

The U.S. is to publish the weekly report on initial jobless claims.

Friday, February 8

Markets in China will remain closed for the Lunar New Year holiday.

Japan is to release data on average cash earnings.

St. Louis President James Bullard is to speak at an event at St. Cloud State University.

Canada is to round up the week with its latest employment report.

-- Reuters contributed to this report

Forex - Weekly Outlook: February 4 - 8
 

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