Dollar advances to the rear


Broadly, the USD lost ground to the EUR during the first half of the New York session and fell against the JPY in the second half. There were no US economic data to affect the proceedings.

There was, however, and end to the government shutdown. The growing rate of absence among unpaid TSA workers was creating difficulties for air travel and other problems loomed, including the federal court system and food stamps. The president capitulated, signing a bill that would provide funding for the next three weeks. But there's the rub: White House chief of staff Mick Mulvaney said that if the president could not secure funding for his wall from Congress or through emergency powers, another shutdown will begin on February 15. Investors were less than enthused at the prospect.


Despite the economic gloom that pervades the euro zone, data released this morning showed that money supply and lending by banks remained robust in December. The broad M3 measure of money supply, a traditional pointer to economic activity, jumped 4.1% in calendar 2018, a bigger increase than forecast. Lending was up by 3.3% in the year, holding steady at a post-financial-crisis high. The numbers tended to support ECB president Mario Draghi's assertion that the slowdown in the euro zone does not amount to a downturn or the onset of a recession.

The lending data helped to support the EUR near the highs of the day's range. It is a net 0.7% higher against the USD.


The commodity dollars - the AUD, NZD and CAD - all had a better than average day, helped by a risk-on tilt among investors. The AUD and NZD made most of it, strengthening by 1.4%, but the CAD's 0.8% gain was not to be sniffed at.

There were no Canadian economic statistics and WTI crude is down by 1.3% on the day. It was therefore sentiment, not any hard economic evidence, which led investors to buy into supposedly "risky" assets.


Sterling received some theoretical help from the Confederation of British Industry's Distributive Trades Survey. Retail sales were flat in the year to January, in line with expectations. The reading of 0% was a considerable improvement on the -13% reported for December. 

However, it was not retail sales that drove the GBP. It was build-up to some important votes in the House of Commons tomorrow. Sterling continued to prosper from investor's belief that Britain will not leave the EU without some sort of withdrawal agreement. Their faith was deepened by a report in the Sun newspaper that the prime minister has "privately" told ministers that she has ruled out a no-deal Brexit. Sterling did not make progress on all fronts but it went up by 0.6% against the retreating USD.


The increased risk-on sentiment did not work in the favour of the JPY. It lost ground to the EUR and the commodity currencies. But investors were even less enthusiastic about the USD so the JPY strengthened by 0.4%.

There were no Japanese data overnight, just the minutes of the Bank of Japan's December monetary policy meeting. They did not add a great deal to the fund of human knowledge. The minutes did reveal, however, disagreement between members as to whether bond yields should be allowed to go negative. Some said yes: one countered with the suggestion that yields should go higher "to ease the burden on the financial system and make corporate bonds more attractive to investors". 

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