Dollar Ending Week Quietly

The US dollar is little changed against the major currencies.  It has spent the week largely consolidating the recent moves.  After falling against all the major currencies last week, it recovered somewhat against most this week.  The main exceptions were the euro and Swiss franc, which have gained less than 0.3%.  

The weakest of the major currencies have been the Swedish krona, which has been undermined by the shift in sentiment back toward a rate cut following soft CPI data (deflation) earlier in the week and disappointing consumer and business confidence reports today.   The euro has made new highs for 2014 today against the krona as it traded through SEK9.0 briefly.  

The Canadian dollar is a close second for weakest of the majors. About a third of this week's decline is being recorded today, ahead of the December retail sales report (consensus -0.4%) and January CPI (little change expected, which means it remains of heightened concern for the central bank due to its persistent low readings).  We note that the Canadian stock market has advanced for 12 consecutive sessions coming into today.  It has taken place amid a stabilization of earnings outlook and reports of continued strong foreign interest.  

Although the British pound is slightly lower on the week, its resilience remains the remarkable.  It made a new low for the week, near $1.6615 in response to the 1.5% decline in January retail sales, but quickly rebounded to new session highs (~$1.6680).   Better than expected public finances for January were reported at the same time and may have aided sterling's recovery.  Recall that the December retail sales jumped 2.5% (revised from 2.6%), so January appears to be some payback.  Taken together it is a 0.5% monthly average, which is quite respectable, given that the 12-month average is 0.3% and the 6-month average is flat.  

Note that on the week, the implied yield of the December 14 and March 15 short sterling futures contract has fallen 5-6 bp this week as the soft CPI (and other data) as well as comments from the BOE's Weale and Bean seemed to endorse the market's view that a rate hike is still a year away.   For the record, gilt yields are unchanged on the week.  

It is rating action day.  S&P cut Ukraine's rating for the second time in three weeks.  It now stands at CCC (from CCC+) and the outlook is negative, warning of heightened risk of default.    This now matches the other two main rating agencies.  Separately, Fitch affirmed its BBB+ rating for Ireland and stable outlook.   There was some hope the outlook could have been raised to positive.  Still pending today is Fitch's update on Austria.  The banking woes has already prompted S&P to take away its AAA rating.  While Fitch could do that, more likely to changes its outlook from stable to negative.  Lastly, Moody's is reviewing Spain's Baa3 rating and stable outlook.  Most expect it to affirm its current assessment, though there is some risk that the outlook is upgraded.  

The PBOC has guided the yuan fixing higher for the fourth session today.  It is capping the biggest weekly yuan decline since September 2011.  There are two main explanation of what is going on.  The first emphasized economic factors, and especially the slowing of the economy, foretold this week by the disappointing flash HSBC PMI.  The other explanation focuses on politics.  In particular, some see a Chinese-style protest to the White House meeting later today between Obama and the Dalai Lama.  It does seem a bit out of character for China to allow the yuan to fall on the eve of the G20 meeting.  A clearer picture is expected to emerge next week.  

In addition to the Canadian data, the North American session features US existing home sales.  The Bloomberg consensus calls for a 4.1% decline.  The risk is on the downside, as the last several weeks of data show the most economists have not yet fully taken on board the pace to which the world's largest economy has slowed here in Q1, with many forecasts now coming in around 1.5%-1.7% Next week, the markets will learn that Q4 growth (initially estimated at 3.2%) probably was closer to 2.5%.  Note that the FOMC minutes showed the Fed clearly expected some slow down in H1 after the strong H2 13 performance.  Separately, the Fed's Bullard (non-voter) and Fisher (voter, hawk) will speak on the economy after Europe closes.  

Mexico reports Q4 13 GDP figures.  It is expected to have grown 1.0% after a 1.3% pace in Q3. Economic data has been mostly disappointing and a weak report today will likely spur speculation of a rate cut.  Although inflation has been elevated, the central bank has argued that there are transitory forces at work.  

The draft of the G20 communique has been leaked.  There are not big surprises or market moving developments with it.  There may be some headline risk associated with the formation of a new government in Italy.  There is much focus on who the new finance minister could be be.  The leading candidates reportedly is a professor from Milan University (Tabellini) or Padaon, the chief economist from the OECD.