The US Dollar Index

[Ataglance2]

USD



The dollar fell last week against most major currencies, and is down 2.2% w/w against the yen and 1.5% w/w against the euro. However, the dollar was largely stable on Friday despite further disappointing news on the economic front. US 2 and 10-year Treasury yields fell by a further 1 and 2bp on Friday, and are down 10-12bp on the week. The weaker dollar has coincided with data suggesting that recent optimism over the US economic outlook for this year has peaked. The Uni of Michigan consumer sentiment index for February (preliminary reading) fell to 93.3 from 96.9 in January, while housing starts for January also were soft, falling to 1408k from 1596k in December. We judge that the speculative component of the market is long dollars and as such the dollar is vulnerable to further disappointment on the economic front. However, it is a concern that EURUSD has not more significant gains in light of renewed concerns over the US economic outlook. We would still take the view that further weakness in EURUSD and see a good chance that EURUSD overshoots our 1-month target of 1.3200. This week's data includes CPI for January, and jobless claims on Thursday. We expect core CPI to be stable at 0.2% m/m, and for claims to partially reverse last week's exaggerated rise. The US is on holiday today for President's Day and much of Asia is on holiday for the Lunar New Year.