Due to the Easter holiday on Monday, currency markets were thin during the European session. Most major currency pairs traded in a range as investors awaited the US data.
During most of the European session, the euro traded within Friday’s range against the dollar, between $1.1150 and $1.1175, as there were no news releases out of Europe. Sterling was also in a tight range just below $1.4150 before edging higher. By the time US markets opened and the US economic data were out, the dollar turned back down and helped the euro rise to $1.1208, while the pound rallied to $1.4282.
The dollar gave back earlier gains made against the yen and moved lower after US data failed to show rising inflation or spending. The personal consumption expenditures price index (PCE), which is the Fed’s preferred inflation measure, increased 1.0% year-on-year in February following from January’s downwardly revised 1.2%. Core PCE, which excludes food and energy, gained 0.1% in February on a month-to-month basis after advancing 0.3% in January. It was lower than the expected 0.2% increase. But the annual increase was unchanged at 1.7%. US consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.1% in February after January’s downwardly revised 0.1% increase. Meanwhile, personal incomes rose 0.2% last month from January’s 0.5% gain.
Today’s data weighed on the US dollar as the Fed would be less likely to hike rates in their April policy meeting. However, the greenback’s decline was halted after some upbeat US pending home sales data. On a month-on-month basis, February sales rose 3.5% to a seven-month high, versus an estimate of a 1.2% rise and reversed January’s 3.0% decline. On a year-on-year basis, pending home sales were up 5.1% in February contrary to forecasts for a decline of 0.4% and reversed January’s 1.5% drop.
The dollar trimmed losses from falling to 113.14 yen on the weak PCE data and jumped to 113.33 yen after the home sales data.
Oil futures rose above $40 a barrel today for the first time since March 23 before heading lower to $39. The Canadian dollar received a boost and despite the drop in oil prices, the loonie held gains due to the falling greenback. USDCAD slid to $1.3181. Earlier in the day it hit a high of $1.3283.
Looking ahead, a key risk for the dollar will be Tuesday’s speech by Fed Chair Janet Yellen. She will be talking at the Economic Club of New York on the topic of “Economic Outlook and Monetary Policy”.
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