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Dollar Strengthens on Fed Statements, Q4 GDP

Dollar Strengthens on Fed Statements, Q4 GDP

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The US Dollar ended the week recovering the losses from a week ago on hawkish statements by Fed officials and a higher Q4 GDP.

Federal Reserve board members came out strongly hawkish in view of hiking interest rates, in a surprising turn around. The comments follow the latest FOMC statement which was more dovish and promising to maintain an accommodative monetary policy, forecasting only two rate hikes in 2016.

Weekly Review

The US Dollar closed the week recovering most of the losses from a week ago. Despite weak durable goods orders which fell -1.0% on the core and -2.80% on the headline and mixed existing and new home sales numbers, the Dollar managed to keep its steady pace of gains. Friday's final revision to the fourth quarter GDP saw the US economy revised higher to 1.40% annual growth, up from the previous estimate of 1.0%.

In Europe, equities were under pressure as terrorist attacks in Brussels briefly sent the markets in a flight to safety. The Yen, Swiss Franc and gold were bid up as a result, but the risk aversion quickly faded as the markets got back to normalcy. Economic data from the Eurozone this week saw the flash services PMI rising to 54.0, while manufacturing was soft at 51.4. The flash composite PMI was also broadly higher at 53.7. Economic data was broadly in the positive with Friday's French GDP numbers being revised higher as well. However, the Euro remained under pressure for most of the week.

The British Pound was the big loser this week as consumer inflation failed to keep up the recent gains in wages. British inflation increased 0.30% in February on a year over year basis, same as in January, while headline inflation was steady at 1.20%. Retail sales were a bit encouraging as core retail sales fell 0.20%, less than the anticipated -1.0% while the headline retail sales fell 0.40% against expectations of a 0.70% decline on a month over month basis. The retail sales numbers saw a modest turn around in prices which helped the British Pound to recover from a 5-day low by Friday's close.

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The Week Ahead

The markets head into a final trading week for the month of March. Monday is expected to remain quiet with most the markets remaining closed on account of the Easter Monday holiday. The economic calendar gets busy from Wednesday starting with the German inflation data and the US monthly ADP private payrolls numbers. Expectations are for an increase of 200k jobs in the month of March. Thursday see's the quarterly GDP numbers out of Denmark while Spain reports its retail sales numbers for February. The UK's Office for National Statistics (ONS) is expected to release the final revision to the fourth quarter GDP data which is slated to remain unchanged at 0.50% for the quarter. In the US session, Canada's monthly GDP numbers are due.

Come Friday, the most watched monthly nonfarm payrolls data is due for release. Expectations call for a monthly payroll increase of 200k in March, following the increase of 242,000 in February while the US unemployment rate is expected to remain low at 4.90%, marking a third consecutive month of US unemployment staying below the 5.0% threshold.

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