The dollar retreated from four-and-a-half month lows after the speech of Fed’s chair Janet Yellen, who noticed a stable economic recovery, backed by low unemployment and inflation that is steadily reaching the target level. However, she stressed that low-skilled labour continues to enjoy low demand, as evidenced by high unemployment among this layer.
Another Federal Reserve official, Jerome Powell, confirmed investors’ fears that the failure of Trump’s healthcare bill had made the Fed’s job harder, as the “scope, timeframe and content” of his programme limits the horizon of forecasting rate hikes. “We’ll have to wait” Powell said, hinting that the US central bank is not going to jump into forecasts and rates hikes amid uncertainty over Trump’s policy.
As expected, positive data on consumer confidence and trade balance lent support to the dollar, which added $0.5 during the New York session. According to the Department of Statistics, the consumer sentiment index exceeded expectations, reaching 125.6 points against the forecasted 114 points. This was largely due to the growth in wages, showing positive figures for three consecutive months (an average of 0.2%). Increased consumer optimism creates favourable conditions for a rise in consumer spending and hence inflation, which requires more decisive actions from the Fed.
The US trade deficit shrank to -64.8bln dollars against the expected -66.4bln dollars. The trade balance numbers were not supportive of the growth of consumer sentiment and the oil market at the beginning of the year. Nevertheless, the figures positively affected the dynamics of the dollar that strengthened following a recovery in the economy.
The British pound tumbled shortly before May signed the document that initiated the withdrawal of the UK from the European Union, but later trimmed losses, as investors turned their attention to specific details of the withdrawal that will become known during the negotiation process. Now, the British government and the EU will have to work out a new format of cooperation in trade, immigration and other domains that can both positively and negatively affect the dynamics of the currency.
Gold and other precious metals recovered from their losses, following the strengthening of the dollar, but their dynamics are uncertain as the Brexit process remains unclear, while fuelling demand for defensive assets. The US stock markets have returned to the growth zone. The yen also found support after yesterday’s rollback, which indicates that the risk aversion remains well in place.