Upbeat US data offsets start of the year weakness

On Thursday, the Dollar surged after construction spending rose to a record high in November 2017 amid broad gains in both private and public outlays. Given the bullish growth outlook, investors expect the Federal Reserve to raise interest rates in March 2018 after increasing borrowing costs three times last year. The Dollar gained further support as the minutes from the Fed’s December 12-13 meeting were more hawkish than anticipated, indicating that the Central Bank is still poised to raise interest rates several times this year. Fed policymakers acknowledged the US labor market’s solid gains and the expansion in economic activity, even as they affirmed worries about persistently low inflation.

On Wednesday, the British Pound slipped from a three-month high of 1.3614 against a stronger US Dollar after a survey showed growth in Britain’s construction sector slowing last month. Despite some progress in Brexit talks towards the end of last year, Sterling needs stronger signs that Britain will get a transition deal and a favorable trade deal with the EU before it can climb further.

Yesterday as well, Oil prices hit a high of 62.17 marking levels not seen since before a slump in commodity markets in 2014/15, boosted by tensions in key producer Iran and by OPEC-led output cuts. The API said that US Crude Oil inventories fell by 5 million barrels in the week to December 29, 2017 to 427.8 million barrels.

In the meantime, the Canadian Dollar dipped but held within reach of an earlier 2-1/2-month high as investors turned attention to US and Canadian employment data scheduled for later in the week. Canada’s employment report for December and November 2017 trade data are due today, which could help guide expectations for additional Bank of Canada interest rate hikes this year.