The dollar strengthened against its peers on Friday following the release of US GDP data which was widely in line with market forecasts and as the greenback was supported by the Bank of Japan’s surprise decision to introduce negative interest rates. The US economy expanded at an annual rate of 0.7% in the 4th quarter of last year following a growth rate of 2% in the 3rd while experts forecast a rate of 0.8%. The US Commerce Department reported 2.4% GDP for 2015 in line with GDP for 2014. The US dollar index reached its highest level since January 21 at 99.88 to come off at 99.60 towards Friday’s close up 0.99% on the day. The Institute of Supply Management is set to release manufacturing activity data tomorrow.
The People’s Bank of China raised the yuan’s central parity rate against the dollar from 6.5528 on Thursday to a stronger 6.5516 on Friday. The yuan has a 2% move limit either side of its daily midpoint rate against the dollar. China is set to release manufacturing and service sector data and Caixin manufacturing index numbers tomorrow.
The euro weakened against the dollar with the pair down 0.98% trading at 1.0832 towards Friday’s close off its session low of 1.0809 after having come off its session high of 1.0949 reached earlier in the day. Leading up to the release of US GDP data the euro had been pressured by varied euro zone economic data while the greenback had maintained some support. Euro zone annual rate of inflation was up by 0.4% in January matching forecasts following an increase of 0.2% in December. Retail sales in Germany dropped 0.2% in December while experts forecast an increase of 0.5%. Spain’s GDP rose by 0.8% in the 4th quarter in line with expectations. European Central Bank President Mario Draghi is due to testify before the European Parliament tomorrow regarding the central bank’s annual report for 2015.
The pound weakened against the dollar with the pair down 0.82% trading at 1.4242 towards Friday’s close off its session low of 1.4148 after having come off its session high of 1.4412 reached earlier in the day. The Bank of England’s interest rate decision next week is likely to heavily impact the pound as the central bank is also scheduled to release its updated forecasts. The pair should rebound to then succumb to a dovish stance from the BOE and the nonfarm payrolls report which is expected to be favorable later this week. The UK is scheduled to release manufacturing activity data tomorrow.
The yen weakened against the dollar with the pair up 1.95% trading at 121.12 towards Friday’s close off its session high of 121.69 after having come off its session low of 118.37 reached earlier in the day. The yen plummeted against the greenback after the BOJ shocked the market by lowering its deposit rate to below zero in order to ward off risk of deflation. The BOJ indicated that the central bank is prepared to introduce further interest rate cuts if required. The BOJ is now alongside the European Central Bank with having reduced rates to negative territory, highlighting a differing monetary policy stance from the Federal Reserve who raised rates for the first time in nearly a decade last December.
The Australian, New Zealand and Canadian dollars weakened against the greenback. The Aussie was trading against the dollar at 0.7081 towards Friday’s close off the pair’s session low of 0.7058 after having come off its session high of 0.7141 reached earlier in the day. The kiwi dollar was trading against the greenback at 0.6468 towards Friday’s close off the pair’s session low of 0.6458 after having come off its session high of 0.6543 reached earlier in the day. The loonie was trading against the dollar at 1.3973 towards Friday’s close off its session low of 1.3966 after having come off its session high of 1.4108 reached earlier in the day. Commodity associated currencies maintained support as oil prices remained near $33 per barrel.
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