Can US Consumer Put the Bid in the Dollar?

Market Drivers March 01, 2018
Risk aversion helps the buck
UK PMI beats slightly
Nikkei -1.56% Dax -1.44%
Oil $61/bbl
Gold $1311/oz.
Bitcoin $10650

Europe and Asia:
GBP UK PMI Manufacturing 55.2 vs. 55
GBP UK Mortgage Approvals 67.47K vs. 62K

North America
USD PI/PS 8:30
USD PCE 8:30
USD PCE Index 8:30
CAD Current Account 8:30
USD ISM Manufacturing 10:00

It’s been another quiet night of trade in the FX market marked mainly by risk aversion flows that saw all high beta currencies sell off as both Nikkei and Dax dropped by more than 1%.

With equities in the doldrums, the Aussie slid the furthest hitting a low of .7711 in early European dealing with the move exacerbated by poor Private Capital Expenditure results which dropped to -0.2% versus 1.0% eyed.

In other economic news, the data from UK was mildly positive with PMI Manufacturing coming at 55.2 versus 55 and Mortgage approvals rising to 67K from 62K forecast. The news helped to cushion the fall for sterling and the pair held ahead of the 1.3700 figure for the time being.

Although risk aversion flows dominated trade today, USDJPY held its own as the pair found support ahead of the 106.50 level and traded back to 106.80. A big factor in how the pair trades today could come from North American session when the market will get a look at both Fed’s favorite measure of inflation – the PCE index and consumer spending. The core PCE index is expected to climb to 0.3% while personal income and personal spending are forecast to rise but at a slower pace than the period prior.

Wage growth and inflation growth are absolute keys to dollar strength as they will confirm Fed’s hawkish stance, so any upside surprises in today’s data could propel USDJPY through the 107.00 figure and set it on a path towards 108.00. There is more than a yard of options expiry at 107.50 for USDJPY at the New York cut, so if news proves to be market moving the pair could see some action as the day proceeds.