| January was an extremely bad month for the US dollar mainly due to the dovish Federal Reserve. The Fed mentioned in the minutes of the December monetary policy meeting that it "could afford to be patient about further policy firming" - a sentiment that Fed Chairman Jerome Powell echoed in his comments and the central bank repeated in the statement of the January monetary policy meeting. The government shutdown was hurting the currency as well, and the temporary end of the shutdown did not help the currency that much. Among few supportive factors for the dollar were hopes for improvement in relationships between the United States and China. The euro started the year poorly, with a flash crash caused by the Apple's profit warning, and continued to trade soft due to poor macroeconomic data. The shared 19-nation currency tried to rally on the back of the dovish Fed but retreated afterwards. The theme of weak macroeconomic reports continued with German's slowing growth. PMIs released by the end of the month were weak as well, though the balanced speech of European Central Bank Governor Mario Draghi helped the currency to stabilize. The Great Britain pound continued to be driven largely by Brexit news. Surprisingly, the currency rallied after UK Prime Minister Theresa May suffered a historic defeat in the parliament with her Brexit plans. Afterwards, opposition Labor Party leader Jeremy Corbyn initiated a confidence vote, which May's government survived, bringing the sterling to new highs. The main issue remained the Irish backstop plan, which Britain's politicians wanted to renegotiate - an idea categorically opposed by the European Union. The Japanese yen started January strong on the positive outlook for Japan's economy, but that changed after the Bank of Japan slashed its economic forecasts. Risk appetite and poor macroeconomic reports made the currency end the month with losses. Commodity currencies demonstrated the best performance in January due to risk appetite caused by hopes for improving Sino-US relations. The Australian dollar got support from better-than-expected economic reports from both China and Australia itself, though the currency slid after a Markit report showed the slowest expansion of China's manufacturing sector since February 2016. The Canadian dollar started the year strong thanks to rising prices for crude oil and positive employment data both in Canada and the United States. The currency continued to follow moves of crude throughout the month, rising when oil was moving up and falling when it was going down. The loonie weakened after the Bank of Canada downgraded its growth forecast, but positive economic reports allowed the currency to rebound. Positive inflation data boosted the loonie further, and the signal from the central bank that it took a wait-and-see approach regarding interest rate changes did not weaken the currency. New Zealand's inflation data was good as well, helping the New Zealand dollar to rally. As it usually happens, gold was trading inversely to the US dollar, suffering when the currency was rising and profiting when the greenback was falling. |
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