As gloomy news abounds across the world, the United States Dollar is starting the trading day on the back foot today after both the UK and Japan slipped into recessions last year.
Overview
US retail sales for the month of January were also released this morning and painted a rather dour picture, contracting 0.8% last month compared with expectations of a smaller contraction. All told, the global mood has soured dramatically in the last few days and USD is no longer reaping the benefits.
Though data releases overnight and this morning are decidedly negative news, they are not exactly a surprise. Japan and the UK have been teetering on the brink of a technical recession for some time now as both nations struggle with stagnant economies in the face of high inflation. A contraction in retail sales for the US isn’t all that shocking either. January marks the end of the holiday sales season, so a slower pace of purchasing from December is almost to be expected. The size of this month’s contraction is what’s giving the Dollar some room to the downside. Import prices also rose a surprising 0.8%. Industrial production, however, did gain some ground to the tune of 0.2% in January.
Releases like retail sales are seen as more of a leading than lagging indicator, so it’s possible this is indicating the US’ foot has come off the proverbial gas a bit. Altalnta’s GDP Nowcast has its forecast for Q1 GDP at 1.8% after today’s retail sales miss, a decided step down from the unprecedented growth of the second half of last year. Only time, however, will tell as the pace of hiring remains strong and other macro and lagging indicators point toward continued positive territory.
What to Watch Today…
GBP ⇓
Pound Sterling is the only G10 currency not appreciating against the USD this morning and is so far flat on the day, consolidating a loss for the week. The UK also entered a recession for the second half of last year, and in response, traders have consolidated their positions that the Bank of England will cut interest rates a total of three times this year. Perhaps most worrying is that GDP per capita, an important indicator of household income, fell 0.7% across all of 2023 indicating that the UK may have actually been in a recession since 2022.
JPY ⇑
Even after Japan’s GDP last night showed the island nation did enter into a technical recession in the second half of last year, JPY is strengthening today. JPY weakened past a key psychological threshold in trading yesterday, prompting strong verbal warnings from currency officials, and markets remain wary of the possibility of intervention on behalf of the flailing currency, prompting a small resurgence. US data this morning also helped boost the Yen.
