US DOLLARFUNDAMENTAL FORECAST: NEUTRAL
- US Dollar continues to find strength in haven-seeking capital flows
- Incoming economic data likely to stoke worries about global downturn
- Back-to-back “meaningful” Brexit votes to keep investors on defense
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The US Dollar build steadily higher last week, buoyed by haven-seeking capital flows as global slowdown fears soured market sentiment and inspired an exodus from cycle-sensitive assets. That understandably put a premium on liquidity, where the Greenback has no rival. A dour assessment of growth prospects from the ECB triggered the largest upward push, producing the biggest one-day USD rise in two months.
This pattern looks likely to find follow-through in the week ahead. On the domestic data front, a defensive tone may be inspired if incoming retail sales, inflation and consumer confidence figures echo the recent string of disappointments relative to baseline forecasts. While this may nudge Fed policy bets further toward the dovish end of the spectrum, post-ECB price action hints the promise of the stimulus has lost is allure.
The external landscape is not much friendlier. Monthly UK GDP data is expected to show modest growth in February after a preceding contraction, but a steady stream of underperforming outcomes since October warns that this release may offer more fodder for global downturn worries. Meanwhile, back-to-back “meaningful votes” on the fate of Brexit will keep traders on pins and needles.
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China represents another troubled spot. Sluggish performance in the world’s second-largest economy is at the top of investors’ list of concerns. The end of the annual National People’s Congress will probably bring a downgrade of growth objectives while retail sales and industrial production data signal continued malaise. All this seems likely to add up to another week of anti-risk support for the Dollar.
— Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com
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