Last week the dollar lost the majority of its positions, although at the end of the week it managed to improve the situation a little. The fact is that the US data that were published raised too many questions. Of course, inflation remained at the level of 2.1%, but did not decrease to 1.9%, as previously expected, which, of course, inspires optimism regarding the pace of hikes in the interest rate. However, the growth rate of retail sales slowed from 5.2% to 3.6%, indicating that companies' revenues decreased. Moreover, commercial inventories grew by 0.4%, and they have been growing for two consecutive months. And before the previous reduction, stocks rose for another five months in a row. Against the backdrop of a decline in consumer activity, a continued increase in inventories indicates the risks of a crisis of overproduction. Moreover, the growth rates of industrial production accelerated from 3.4% to 3.7%, meaning warehouses will continue to be overstocked. But it is too early to draw such conclusions. However, the dynamics clearly indicates an increase in risks. And, of course, this can't help but disappoint investors. And only at the end of the week did the dollar receive support from data on the construction sector. The number of issued construction permits increased by 7.4%, while groundbreaking activity increased by 9.7%. Not only that the data showed significant growth, so this all was superimposed on the oversold dollar.
In continental Europe there was not much data, and only industrial production had a serious bearing. The growth rate of industrial production accelerated from 3.7% to 5.2%. And in the UK, inflation did not slow down, as expected, but remained the same. Of course, at the current borrowing rate, inflation of 3.0% raises too many questions to the Bank of England, which, it seems, does not have control over the situation. However, inflation ceased to grow, so fears decreased slightly. Also, the growth rate of retail sales accelerated from 1.5% to 1.6%. Thus, the dollar had many reasons for weakening. It was assumed that the decline in the industry should somewhat slow down, from 1.5% to 0.3%. But in fact, it showed an increase of 2.9%, so that there are assumptions that industry is starting to get out of stagnation.
The main event of the current week will be the publication of the text of the minutes of the meeting of the Federal Commission for Open Market Operations. It expects to find an answer to the question about the rate of increase in the refinancing rate this year. It is worth recalling that last year, a plan was announced for three more rises, but now almost everyone agrees that the Fed will raise it only once. If the regulator announces a sharper tightening of monetary policy, the dollar will have a serious reason for resuming its growth. In addition, the US will be published preliminary data on business activity indices, which can give the dollar even more optimism. In particular, the index of business activity in the service sector can increase from 53.3 to 54.0. True, the production index is likely to decline from 55.5 to 55.3. However, the index in the service sector has a much greater weight, so the composite index should grow.
European business activity indices did not have a positive argument for the the single European currency. The index in the service sector may decline from 58.0 to 57.6, and the production index from 59.6 to 59.3. As a result, the composite index should decrease from 58.8 to 58.5. But inflation should remain unchanged, which is already good. True, it has long been showing signs of acceleration, so it's time to talk about the high probability of its slowdown. In the UK, there are data on the labor market, which should show stability and unemployment, and wage growth rates, which continue to remain below the level of inflation. Thus, data on the number of applications for unemployment benefits, which may increase by 2.6 thousand, are of great interest. Taking into account that their number increased by 8.6 thousand in the previous month, the dynamics is clearly positive. The unemployment rate is expected to increase from 5.1% to 5.2%, while retail sales may slow from 3.1% to 3.0%.
The dollar has all chances to continue to strengthen, so that the euro/dollar pair will finish the week at 1.2275. The pound/dollar pair has every chance of falling to 1.3200.
