– Weaker US retail sales needed to dampen USD rally
Markets continue to remain calm, largely ignoring the Fitch downgrade of Italy and unfavourable Chinese data releases (lower activity, higher inflation) over the weekend. This calm could continue today with little in way of events or data releases in the US session. But the market view is clear; punish the printers (JPY, CHF and GBP) and reward the USD for improved cyclical data. The EUR and commodity bloc, meanwhile, remain in no-mans land. On the USD, we do not think that last week’s non-farm payrolls report was a game-changer for the Fed. But the risk is that the market continues to push the USD higher until we get that confirmation at the March 20 FOMC meeting, where the Fed will release revised quarterly forecasts. Before then the FX market will continue to respond to US data, and we would need weaker data to alter this view. Wednesday’s US retail sales report will be important. The street generally looks for a decent headline reading, but our economists believe that removing autos and gasoline, sales could contract (-0.3% m/m) with the fiscal tightening coming from the payrolls tax holiday expiry. This could temper some of the recent USD strength against the commodity currencies.
Click here to read the full report: FX Daily
BNP Paribas