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US Industrial Production Rises Above Expectations

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US Industrial Production data for the month of February has just been published, the headline figure is 0.6%, this is in comparison to last months slight contraction of 0.3%. The market had agreed a consensus expectation figure of 0.2%.

This is a very straightforward number that gauges US factory output and although readings have been mixed over the past year there is a definite positive undertone in evidence. Today’s positive but relatively benign number is therefore unlikely to carry sufficient weight to give anything but very short term direction to the US Dollar.

The Federal Reserve meeting later this week holds the key to longer term Dollar direction. However the expectations for a move away from 0.25% interest rates are practically zero at this point.

The real risk event from the Federal Open Markets Committee (FOMC) meeting will be any change to the Feds bond purchase program. Janet Yellen and other committee members have recently been softening the ground for a potential reduction in the level of ‘tapering’. This doesn’t however imply that the pace of scaling back of Fed bond purchases is imminently likely. Rather it means that the Fed is simply reserving the option of maintaining the monetarily loose position for a while longer if it deems it optimal for the US economy. A ‘tapering’ related announcement on Wednesday is therefore possible but not probable.

The US Dollar nonetheless remains relatively weak. Despite reasonable positive US data over the past 10 days, the Dollar index (DXY) continues to hover around its 12 month low of .7900. The threat of sanctions by the US administration on Russia bears much of the responsibility for the languishing US Dollar. The lead up to yesterday’s Crimean referendum brought talk of Washington imposing restrictions or even a complete freeze on Russian held assets in the US. This prompted Russia and Russian investors to begin unwinding there US held positions which has in turn led to an artificial suppression of the US Dollar.

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