February has been a great month for the and U.S. stocks. The climbed to record highs and even as stocks pulled back toward the end of the week, the declines were modest, given recent gains. Most importantly, we have not seen days of back-to-back triple-digit declines, which would be the first sign of sustainable risk aversion. The coronavirus makes central bankers, investors, businesses and every-day citizens nervous but investors have been able to look past the virus’ impact.
The USD is king because coronavirus helps the greenback – it shines a light on the country’s resilience and draws in safe-haven demand. While U.S. data has been mediocre, we haven’t seen extensive deterioration and that alone has been enough to reassure investors that while not immune to China’s troubles, the U.S. economy will outperform. rose 0.3% in January, which was right in line with expectations. , spending growth slowed to 0.3% from 0.6% but this was also in line. The was stronger than expected despite all of the virus concerns.
Next week the main focus for the dollar will be the Fed. A number of Federal Reserve presidents are scheduled to speak and the are due for release. On Thursday, the Federal Reserve announced that starting next week, it will be reducing the amount of repos offered. This was in response to the last 3 operations, which were oversubscribed as banks seek out cheap funding and this is positive for the dollar because it reduces the availability of cheap money. Looking ahead, we expect U.S. policymakers to downplay the virus impact in the same manner as the markets. Housing and manufacturing numbers are on the calendar and they are not expected