22 October 2016
US shoppers are not spending as much as expected. With inflation also easing, there's less pressure on the Federal Reserve to raise interest rates anytime soon. Photo: Bloomberg
US shoppers are not spending as much as expected. With inflation also easing, there's less pressure on the Federal Reserve to raise interest rates anytime soon. Photo: Bloomberg

US dollar running out of steam on weak data

Slowing US consumer spending, coupled with easing inflation, is dampening expectations for an imminent increase in the Federal Reserve’s benchmark rates.

The US dollar index, a measure of the greenback’s relative strength against other major currencies, has fallen to 95.84 from a high of 96.4.

US consumer spending inched up 0.1 percent in February after being revised down 0.1 percent in January.

Inflation eased last month, with the personal consumption expenditure index slipping to 1 percent growth in February.

The euro rose to 1.1218 against the dollar, the highest since March 23, and could extend the rally to 1.15 if it manages to break 1.1375, a record set on Feb. 11.

Meanwhile, Japan’s February consumer spending rose for the first time in six months.

However, stalling wage growth and concerns about the world market continue to put pressure on the Japanese government for further stimulus.

Labor demand remains at its highest in 20 years while unemployment is up slightly.

That is a sign an improving Japanese labor market might hit a bump.

Increasing concerns about fragile growth in emerging markets might prompt Japan to adopt further stimulus measures and delay hiking consumption tax.

The US dollar rallied to 113.70 against the Japanese yen on Tuesday, up from a 17-month low of 110.65 in mid-March.

It’s obvious that 110-111 is a key support level.

In the past month, the greenback has hovered around 111 to 115 against the yen.

The US dollar has stabilized against the Swiss franc at 0.965 compared with 0.9658 on Feb. 11.

It’s expected to steady at 0.965 in the short term.

Canada’s central bank is widely expected to raise interest rates amid a recovery in oil and commodity prices.

The government in Ottawa announced a fiscal budget deficit of C$29.4 billion (US$22.5 billion) for the new fiscal year, equivalent to 1.5 percent of gross domestic product (GDP).

The US dollar broke 1.319 against the Canadian dollar last weekend and should have substantial support at 1.29 to 1.30.

Gold prices fared badly in March, continuing a down trend for the month since 1975, according to the London Bullion Market Association.

In the past 40 years, the yellow metal has fallen more than 1 percent on average during March, the worst month of the year.

By Monday, gold prices had lost 1.4 percent for the month.

Net long positions in gold by investors rose to 178,800 contracts in the week to March 22 on Comex, rising an eighth week out of nine, US Commodity Futures Trading Commission data shows.

Also, the world’s largest gold ETF (exchange traded fund) holdings hit its highest level in more than two years, a sign investors are buying cheap gold in the traditional low season.

Gold tumbled to a month low on Monday amid a weakening US dollar and disappointing US economic data.

It slipped below US$1,225 per ounce on Wednesday.

Silver has picked up since January but the rally ended on Monday.

Its 200-day moving average of US$14.85 per ounce may dip if prices stay below US$15.09 this week.

This article appeared in the Hong Kong Economic Journal on March 30.

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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