US Dollar Softens as US Inflation Fails to Pick up

Australian Dollar (AUD) Finds Modest Support on Building Permits Increase

The Australian Dollar (AUD) found some limited support on the back of December’s finalised building permits data as the final reading confirmed that permits rose 10.9% on the month in December.

However, an unexpectedly negative Chinese inflation rate ultimately saw the sense of market risk appetite limited, keeping the ‘Aussie’ under a degree of pressure.

Another positive consumer inflation expectations reading could help to shore up AUD exchange rates this morning.

Pound (GBP) Benefits from Optimism over UK Vaccine Rollout

The Pound (GBP) strengthened thanks to increased optimism over the progress of the UK’s Covid-19 vaccine rollouts.

With the UK’s vaccine progress still outstripping that of many other countries, investors were encouraged to bet on the prospect of the country returning to normal sooner than some of its rivals. The prospect of a potential end to the national lockdown on the horizon helped to push the Pound higher, climbing to a 33-month high against the US Dollar overnight.

Even so, mounting anticipation ahead of the release of the fourth quarter UK GDP report may still put some pressure on the Pound.

Euro (EUR) Slides on Surprise French Industrial Production Decline

The Euro (EUR) faltered during the European session in response to a surprise deterioration in December’s French industrial production data.

While forecasts had pointed towards a modest monthly uptick of 0.2%, the figure instead clocked in at -0.8%, suggesting fresh weakness within the French economy. This weaker showing helped to overshadow the finalised German inflation data, stoking renewed anxiety over the health of the Eurozone economy and its likely double-dip recession.

An underwhelming set of German wholesale price data could see the single currency shedding further ground tonight.

US Dollar (USD) Dented by Lack of Inflation Uptick

The US Dollar (USD) weakened as January’s inflation rate failed to pick up in line with market forecasts.

As the headline inflation rate held steady at 1.4% on the year, rather than picking up to 1.5%, this left USD exchange rates on the back foot once again. This lack of improvement in inflation could give the Federal Reserve greater cause for caution in the near term, leaving the possibility of further policy action on the table.

However, if the latest initial jobless claims figure shows an improvement on the week, this could help the US Dollar to recover some of its losses.

Canadian Dollar (CAD) Downside Limited by Oil Optimism

The Canadian Dollar (CAD) held onto a positive footing as the global oil market maintained its uptrend last night.

While the latest Chinese inflation data put a dampener on market risk appetite, this failed to weigh on CAD exchange rates or the oil market. Bets that the global economy could return to a stronger footing in the second half of the year helped to fuel hopes of increased oil demand, lifting the commodity-correlated currency.

In the absence of any supportive domestic data, however, the Canadian Dollar remains vulnerable to any particular shifts in market sentiment.

New Zealand Dollar (NZD) Under Pressure Ahead of Retail Spending Data

The New Zealand Dollar (NZD) softened in the face of the disappointing Chinese inflation data and reduced market risk appetite.

With the world’s second-largest economy showing some signs of weakness, the appeal of the risk-sensitive ‘Kiwi’ naturally diminished. Even a faltering US Dollar was not enough to shore up NZD exchange rates during Wednesday’s European session.

If retail card spending holds up on the month in January, this could offer the New Zealand Dollar a rallying point.

Data Releases

08:45 NZD Retail Card Spending (Jan)
11:00 AUD Consumer Inflation Expectations (Feb) 3.4%
18:00 EUR Germany Wholesale Prices (Jan)
00:30 USD Initial Jobless Claims (06/Feb) 757,000

Louisa Heath