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Market Outlook

Can the Fed rate decision and jobs data Lift the US Dollar?

Last week closed with the USD falling against other major currencies on Friday, its greatest drop since June owing to the comments by U.S. Treasury Secretary Steven Mnuchin endorsing a frailer dollar.

The U.S. dollar index, that determines the dollar’s strength against six major currencies, plummeted 0.36% at 88.87 late Friday.

The USD was bullish following US President Donald Trump statement on Thursday that the U.S. currency would bounce back and said that the remarks by his Treasury secretary had been misinterpreted by investors.

The USD inched lower after data on Friday pointed that the U.S. economy grew by only 2.6% in the fourth quarter and not 3% as predicted. The USD deteriorated against the yen on Friday, with USD/JPY at 108.58 following Bank of Japan Governor Haruhiko Kuroda’s declaration that the bank expects the economy to sustain growth at a balanced pace and inflationary forecasts to be improving.

Oil prices continued to climb last week, as another setback to the USD with a tenth consecutive week of wane in U.S. supplies raised prices. Gold ended lower on Friday but remained in sight of the earlier day’s 17-month high as the USD was strained by data showing tardy U.S. economic growth and remarks by Mnuchin.

The pound went higher against the USD, with GBP/USD increasing 0.15% to 1.4159 over optimism regarding Brexit and the economic outlook.

The euro increased against the dollar on Friday, with EUR/USD up 0.24% at 1.2427 after a three-year- and-a-half-year high of 1.2537 on Thursday.

ECB President Draghi slammed Mnuchin’s statement on the USD on Thursday, notifying that such statements offended international pacts formulated to end currency clashes.

A stronger euro makes the ECB’s work of buttressing inflation more difficult as lower priced imported commodities act as a strain on prices.

In the coming week, investors will follow the upcoming Federal Reserve meeting, the last one under Janet Yellen before Jerome Powell takes charge.

Friday’s U.S. jobs report for January and Wednesday’s euro zone inflation data are among other important highlights next week.

During the last six weeks gold rallied from a low of $1238 to reach $1365 of late, however the market sentiment seems to be inclined towards an interim correction for gold in the week ahead. So, anyone who missed the rally can avail a nice buying opportunity before a major breakout.

The AUD maybe less influenced by the US Administration in the days ahead, and may end up weaker than earlier. Australia is to come out with inflation figures on Wednesday.

In the coming week the euro zone is to issue an initial estimate of the fourth quarter economic growth and Bank of England Governor Mark Carney is to appear before the House of Lords Economic Affairs Committee, in London.

Also anticipated is China’s statement on manufacturing and service sector and Canada is to issue its monthly GDP report.

The U.S. will close the week with the nonfarm payrolls report for January along with revised data on consumer sentiment and a report on factory orders.