The U.S. dollar is up slightly this morning, stopping its recent bleeding and trimming its weekly decline.
Overview
While corporate earnings and bond yields will likely affect the greenback during today’s session, most eyes are on developments across the Atlantic. Both the Bank of England and European Central Bank released their interest rate decisions this morning and the outcome is adding to volatility. The Euro is slightly off versus the dollar was the sterling is in rally mode.After traders digest the central bank action (or inaction), attention will shift back to our shores as there is a slew of data set for release. Weekly jobless claims will be reported at 8:30 a.m. followed by Markit and ISM service data at 10 a.m. Factory orders and Durable goods will fill out the busy morning. While today’s data is top tier, most traders will eagerly turn their attention to tomorrow’s Non-Farm Payrolls number. Economists expect that the economy added a meager 150K jobs in January in which the economy was hampered by Omicron. Yesterday’s ADP private payrolls number drastically underwhelmed expectations causing some to believe tomorrow’s number will be low. A struggling labor market could cause the Fed to soften its stance on future interest rate hikes, bolstering risk sentiment and weakening the dollar.
What to Watch Today…
- ISM and Markit Service Data
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EUR
After a week’s worth of gains, the Euro is slightly lower this morning. EUR/USD has sold off slightly more in the minutes following the European Central Bank decision. As expected, the ECB left its main refinancing rate and the deposit facility unchanged.
There has been mounting pressure on the central bank to move towards tightening policy as inflation is largely unchecked on the continent. While the ECB has pledged to slow asset purchases over the course of the year and end its pandemic program next month, they have given markets little guidance as to when rates could rise.
GBP
The British pound is up to half a percent against the U.S. dollar after the Bank of England hiked rates by 25 basis points for the second consecutive meeting. This met market expectations. The vote was 5-4 with all four dissenting voters preferring a 50-basis point hike which the market has taken as hawkish and has started to price in more rate hikes in the coming months.
More interest rate hikes would close the expected rate differential between the BoE and the Fed and allow the sterling to continue to recoup its losses from the second half of January. Sterling is up for a fifth straight day.The central bank also said it would start reducing its bond holdings. Bank of England Governor will hold a press conference shortly to explain the decision.
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