| In February, the US dollar was largely driven by developments in Sino-US trade negotiations. While no specific details were revealed, it looks like the trading partners and the world's two largest economy managed to extend truce for undetermined period of time. Poor US macroeconomic reports, including the biggest drop of retail sales in 9 years, led to concerns about slowing economic growth, which was confirmed by the fourth quarter GDP data, but that did not prevent the greenback from ending the month as one of the strongest currency on the Forex market. February started poorly for the euro as the European Commission downgraded its growth forecasts. Woes of the currency continued with poor macroeconomic data and concerns about new US car tariffs. The start of February was bad for the Great Britain pound too as all PMIs released by Markit (manufacturing, services, and construction) fell and were below market expectations. The Bank of England hammered the currency further, leaving its monetary policy unchanged and stating that the negative effects of the Brexit had increased. The sterling fell even further after UK Prime Minister Theresa May failed yet again to convince the Parliament to support her Brexit plans. And it looked like she was willing to allow Britain to leave the European Union without a trade deal if no compromise is achieved before the end-of-March deadline. But later she did a one-eighty, saying that if she suffers a defeat in the next Parliament vote she will propose two separate votes for delaying the Brexit and guaranteeing no "hard" Brexit. The Japanese yen rallied in the first half of February after Japanese Prime Minister Shinzo Abe praised the Bank of Japan for its efforts in supporting the Japanese economy. But the rally did not last long, and the currency plunged to the lowest level this year after a release of weak macroeconomic data, which was followed by a release of a report that showed slower-than-expected economic growth. BoJ Governor Haruhiko Kuroda hurt the yen even more, suggesting that the central bank can ease its already extremely accommodative monetary policy if rising currency poses an obstacle in achieving the 2% inflation goal. But ultimately, risk appetite caused by the positive developments in the US-China trade talks was the main reason for the currency's weakness. The Swiss franc was following the market sentiment for the most part, often ignoring domestic macroeconomic indicators, including the falling Producer Price Index. As it usually happens, the Canadian dollar was following moves of crude oil prices. Ultimately, that was positive for the currency as crude rallied over February. But the loonie entered a new month with a big drop as the Canadian economy slowed its annual growth more than was expected and even declined on a monthly basis. The Australian dollar demonstrated extremely poor performance last month. Initially, things looked good for the currency as it seemed like the Reserve Bank of Australia maintained its tightening bias. But the very next day RBA Governor Philip Lowe shattered such optimistic view, stating that chances for an interest rate cut and a hike are now roughly equal, the statement he also reiterated later in his speech. Afterwards, Westpac Banking Corporation went as far as predicting two interest rate cuts this year. Adding to the negative factors, the RBA downgraded its economic forecasts. And while the positive news about the trade negotiations between the United States and China helped the Aussie somewhat, the positive impact did not last long. The New Zealand dollar fell after a release of surprisingly poor employment data. The currency rallied later after the Reserve Bank of New Zealand signaled that it has no plans for cutting interest rate this year or the next. But market participants challenged such view, speculating that the increase of capital requirements for the country's four biggest banks may create tighter financial conditions, which in turn can force the central bank to ease its monetary policy. Gold received support in February from the extremely poor US retail sales and signs that the Federal Reserve may pause its monetary tightening cycle. Yet the metal retreated by the end of the month, dragged down by the strong US dollar. |
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