As volatility remains close to historic lows across the FX spectrum, the United States Dollar is trading sideways but with a slight positive tinge this morning compared with yesterday’s slight negative spin, gaining roughly a tenth of a percent on the Bloomberg Dollar Spot Index.
Overview
Most major currencies have remained quite remarkably range-bound over the last two weeks.
The US producer price index and retail sales figures for February, released this morning, did provide some small signs of life today as retail sales grew 0.6% last month, reversing January’s decline. Though expectations were for a gain of 0.8%, this still represents ‘good news’ in context after January’s rather dismal figure. The US Producer Price Index also grew 0.6% in February, above both January’s reading and market expectations. The annualized figure showed that producers’ prices grew 2% since this time last year, and prices excluding food, energy, and trade grew 2.8% annually.
Even with today’s rather upbeat releases, moves for the Dollar across the spectrum remain quite tepid. Volatility for the EUR/USD pair has been at its lowest point since September of 2021, and even more strikingly, AUD/USD three-month volatility has dropped to its lowest levels since before the onset of the COVID-19 pandemic. Traders are taking bets on calm waters across the board, from currency pairs to raw materials prices and commodities. As today’s PPI and retail sales releases are the last key data points due out before the Federal Reserve’s meeting next week, we are unlikely to see much major movement across the FX board before both the Fed and the Bank of Japan meetings.
What to Watch Today…
GBP ⇓
Pound Sterling slipped slightly to start today but remains supported near recent levels after data showed a pickup in UK housing prices and buyer confidence in February. A decline in mortgage rates, even as the Bank of England has held interest rates steadily high through the front end of this year, may have brought buyers back to the housing market, and economists are tentatively projecting that the housing sector, in particular in the UK may have achieved a mythical ‘soft landing.’ The UK’s monthly GDP for February, released yesterday, also showed a turnaround to slight growth, but US growth continues to run substantially higher.
EUR ⇓
The single currency is sliding a bit this morning while still remaining range-bound close to its two-week moving average, as speculation continues to grow on the timing of the European Central bank’s first interest rate cut this cycle. Governing Council member Klaas Knot and and chief economist Philip Lane both spoke this morning and indicated that they will both be looking toward June as a potential start to their timelines, in line with what Christine Lagarde has pushed for and said earlier this month. It remains to be seen, however, how many times the ECB will cut this year.
