The US dollar is currently slightly lower against most major currencies. The dollar is down sharply against the Japanese yen, which is strengthening thanks to safe haven flows and recent political events in the country. Yesterday, the currency strengthened following significant weakness at the start of the week. While there was no specific catalyst for the move higher, most recent economic data is pointing to stronger future growth. Initial jobless claims met expectations while the New York State manufacturing index beat consensus estimates.
Turning to political news, President Trump has decided to remove H.R. McMaster as his national security advisor. The behavior is typical for the currency, and also fell following Rex Tillerson's firing earlier this week. Domestic politics is only a short-term driver for the currency. Over the longer-term markets will be more focused on issues such as trade, growth and inflation. For now, Trump's threats to impose tariffs is resulting in dollar weakness as Asian exporters allow their currencies to strengthen in relative terms. USD/CNH, for example, has been trading in a narrow band around 6.32 for the last few weeks. If the current tensions escalate into a full-blown trade war, expect the dollar to rise sharply in response. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is down today and currently trading above 105.80. EUR/USD is up slightly and trading above 1.2310. The pound is flat, and GBP/USD is currently above 1.3940.
Turning to US economic data this week, markets will be focused on inflation and retail sales figures. The consumer price index (2.2%) and core CPI (1.8%) both met expectations. MoM march retail sales (-0.1% vs. 0.3% expected) missed consensus estimates. The YoY producer price index (2.5%) met expectations for February. Initial jobless claims (226k) met expectations while the New York Fed manufacturing index (22.5 vs. 15 expected) beat consensus estimates. The NAHB housing market index (70 vs 71 expected) was slightly lower than expectations. Tomorrow, we'll see a number of figures relating to housing (housing starts, build permits), industrial production and capacity utilization. Last week, non-farm payrolls came in above expectations while wage growth failed to meet expectations.