In early April the US dollar index continued to strengthen and by the middle of the month it edged near the recent high. Afterwards there were a few poor US economic data releases and a pullback started. Investors reconsidered the timing of possible Fed rate hike. Late last year they were expecting it to happen in April. Later the consensus forecast was shifted to early July, then to October and even December. Now investors assess the probability of the rate to be raised this year as 50/50. It means that it may not happen at all.
The first disappointing data was the publication of Retail Sales on April 14, which was weaker in March, as expected by market participants. Later on, very weak Q1 GDP for this year, which slipped only 0.2%, was released on April 29. At the same time, CPI in March was quite sluggish, meanwhile the number of new jobs increased. Thus, there are signs of the economic slack, but low interest rates do not involve risks for the labor market or hyperinflation to take place. In such circumstances, the Fed may maintain the current monetary policy for quite a long time. All these factors weakened the US dollar. The bearish trend continued in May following the weak data on labor market and Retail Sales in April. As a result, the dollar fell 6.7%, down from its recent high posted in April, and since early May it sagged 2%. Note that since the beginning of this year it is still advancing 3.7%. The euro has tumbled 5.5% since early 2015 on the start of the ECB money printing program and Greek default risks. However, as the US dollar was weakening, the euro has added 1.9% since early May. The Q1 GDP growth of 2015 in the euro zone outperformed the US level and in annual terms amounted to 1%. Note that the liquidity increase due to money issuing with the rising economy resulted in a rally on European stock markets. Since the beginning of this year the German DAX has climbed 16.7% in euro terms, or 10% in dollar terms. Meanwhile, S&P 500 rose only 2.9%. The pan-European FTSEurofirst 300 index has upped 15% since early 2015. The gainer over the same period was the Russian RTS index, soaring 36% as the Ukraine tensions were gradually eased and world oil prices increased.
- May 22 - CPI in April
- May 29 - Preliminary Q1 GDP
- Euro zone:
- May 19 - CPI in April and Trade Balance
- June 5 - Revised Q1 GDP