The dollar index - again up ?

Last week the US dollar index finished the sideways trading and demonstrated an impressive rise. It began on Wednesday after the positive release of ADP Non-Farm Employment Change. The US dollar index continued to advance on Thursday despite the weak data on Factory Orders and Unemployment Claims. This information was ignored by investors. They were interested in the monthly labor market indicators above all, as they affect the Fed’s decision whether to change the current rate or not. The official report released on Friday confirmed the most optimistic investors’ expectations. Non-Farm Payrolls in February was better-than-expected and rose to 295 thousand.

Unemployment rate in the US has dropped to its lowest level since May 2008 and amounted to 5.5%. The Fed reckons that this level corresponds to “full employment” and lower rates will harm the economy because they may cause a shortage of manpower. Note that the number of Americans looking for a job over 27 weeks hit the six-year low, which confirms the qualitative improvement in the US labor market. Now the majority of investors expect a rate hike at the Fed meeting in June. Amid clear signs of the US economy recovery, economic indicators in the euro zone looked sluggish. This pushed the euro even lower. The German economy still shows signs of slow growth: Retail Sales and Factory Orders increased last week. The fourth quarter GDP of the entire euro zone remained unchanged compared to the previous quarter. The reduction of unemployment rate in January was not significant: from 11.4% to 11.2%.

This week, the most significant US data will be posted on Thursday: Retail Sales, Business Inventories, Import Prices and Unemployment Claims. Producer Price Index (PPI) and Michigan Consumer Sentiment Index (MCSI) will be reported on Friday. We deem that their forecasts are positive for the US dollar. The key European event will be the beginning of bond purchase program scheduled for Monday, carried out as the “QE”. This program will last till September 2016 or until the European inflation rate reaches 2%. The euro may react to the German CPI, which will be released on Thursday. The ECB President Mario Draghi will deliver his speech on Wednesday: his words may also have an impact on the market. This was all for the week, thank you and see you next week.