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The week just gone saw the dollar initially on the back foot, prompted by election results in Japan, and renewed sell-America concerns. The former came as Sanae Takaichi secured an unprecedented majority in Japan’s lower House elections, prompting a sharp JPY rally. The latter, meanwhile, stemmed from reports that Chinese banks had been ordered to review the quantity of their US Treasury holdings. But domestic data has proved less impactful in recent days, with the January jobs report and CPI readings having limited effect on the buck. All told, that has left the dollar drifting sideways into the back end of the week, with market focus increasingly shifting to events elsewhere in the world, and to cross-asset dynamics.
Looking ahead, we expect attention to land on sterling in the coming week, assisted by a US public holiday on Monday. A whole raft of UK data is due for publication, with CPI, jobs readings, and retail sales numbers all set for release ahead of Friday’s PMI figures. If we are right, this should also add to current downside pressure on the pound, with domestic politics a growing drag on sterling valuations. Elsewhere, a rate decision from the RBNZ, Australian jobs numbers, and CPI from Canada and Japan round out the key events to watch. Crucially, the US docket looks somewhat lighter for the week ahead, meaning a less volatile short-term outlook for the greenback when compared to recent weeks.
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Authors:
Nick Rees, Head of Macro Research
Barry van der Laan, Senior FX Market Strategist