Forex Analysis: US Dollar Index Gains as British Pound Extends Decline

Prices were taken at 19:10 GMT.

The British Pound was the top driver for the Dow Jones FXCM Dollar Index today, breaking to 5-month lows against the greenback. Mark Carney, who will become the head of Bank of England in July, said that central bankers can be flexible in meeting inflation goals and there is still room for the monetary stimulus around the world if needed. The British Pound weakened following his speech as markets anticipated it may signal further Quantitative Easing from the Bank of England once Carney becomes governor.

US data was overall mixed on the session, but a strong US Durable Goods Orders report helped push the Dollar Index to a fresh monthly high. On the other hand, US Pending Homes Sales unexpectedly fell in December due to supply limitations in the housing market. The mixed report ultimately had little net effect on the Dollar. Tomorrow, markets look to US Consumer Confidence survey data for January will be the top news for the greenback. Yet the true fireworks may have to wait for Wednesday’s US Q4 Gross Domestic Product report and the Federal Open Market Committee interest rate decision.

The largest mover last week, the Japanese Yen, rallied from its weakest level versus the dollar today as technicalindicators signaled it may have reached oversold territory. Yet Japanese government officials expressed clear desire for further Yen weakness. Early in the session, Japan’s Prime Minister Abe said that only quantitative easing policies will overcome deflation and a strong Yen. The Bank of Japan recently announced it would raise its inflation target to 2.0 percent, and forecasts of CPI inflation of 0.5 percent increase in 2013 clearly leave scope for monetary policy easing. Forex traders may look to Japanese December Retail Trade to guide the short-term moves in the USDJPY.

Economic Calendar

Date	Time	Currency	Event	Importance	Forecast	Previous
Mon Jan 28	23:00		AUD Conference Board Leading Index (NOV)	Medium		0.2%
Tue Jan 29	00:30		AUD NAB Business Confidence (DEC)	Medium		-9
	05:00		JPY Small Business Confidence (JAN)	Medium		43.8
	07:00		EUR German GfK Consumer Confidence Survey (FEB)	Medium	5.7	5.6
	15:00		USD Consumer Confidence (JAN)	High	64	65.1
	23:50		JPY Retail Trade (YoY) (DEC)	Medium	0.3%	1.2%

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