Dollar at Risk if Soft US Data Underpins Fed QE Continuity Bets

The US Dollar may continue to decline if soft economic data underpins Fed QE continuity expectations. The Yen rose on risk aversion and BOJ rhetoric overnight.

Talking Points

Dollar May Fall as Soft US Data Underpins Fed QE Continuity Bets
Yen Gains on Risk Aversion, Kuroda Remarks in Quiet Asian Trade

The economic calendar is relatively uneventful in European trading hours, shifting investors’ focus to the US data docket. The March Retail Sales report is expected to show receipts stalled after rising 1.1 percent in February, yielding the weakest result in five months. Meanwhile, the Producer Price Index gauge for the same period is forecast to show wholesale inflation slowed over the same period while April’s preliminary Consumer Confidence reading from the University of Michigan ticks narrowly downward. On balance, a soft outing is likely to scatter expectations for a tapering of Fed QE efforts, weighing on the US Dollar amid renewed dilution fears (and vice versa).

The Japanese Yen narrowly outperformed in otherwise lackluster overnight trade as Asian stocks declined, spurring a parallel unwinding of carry trades financed cheaply in terms of the go-to funding currency. The MSCI Asia Pacific index fell 0.2 percent in a move the newswires billed as corrective after the regional benchmark hit the highest level since late July 2011 yesterday. Mildly supportive comments from BOJ Governor Kuroda seemed to likewise help after the central bank chief reminded investors that monetary stimulus was aimed at ending deflation, not the exchange rate (though he acknowledged easing tends to weaken the currency).

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