Continuing yesterday’s trend of slow-and-steady Buck moves, the United States Dollar is very solidly mixed against major currencies this morning.
Markets took their time digesting yesterday’s PPI and retail sales releases but ultimately decided that ‘good news is good news’ and the US consumer remains resilient. Though prices cooled more sharply than expected, retail sales remained relatively upbeat heading into the year-end holidays. Producer price inflation posted the biggest decline in three and a half years, taking annualized PPI down to an astonishing 1.3%. The Federal Reserve, no doubt, is quite happy with the figure, and equities and other risk assets cheered, but not to the detriment of the Buck. This morning’s release of import & export prices also showed an actual decline, though the prior month’s reading was revised upward.
It seems, looking retrospectively at this week’s wild swings in the Dollar Spot Index, that Tuesday’s move weaker was ‘the big one’ as prices have since leveled out substantially. Domestic risk, as well, has decreased quite a bit after the US Senate overwhelmingly approved a temporary measure to fund the government and avoided a shutdown that was set to begin this weekend. Though hurdles remain to pass a new real budget rather than continuing stopgap measures, notably debates on emergency aid to Ukraine and Israel, the immediacy of such clashes has diminished.
For the remainder of this year, the big debate amongst traders and market movers is when, exactly, major central banks will begin cutting interest rates. As it stands now, bets are on the European Central Bank to move first in the face of a regional economy teetering on the brink of recession, followed by the Fed and then the Bank of England in order. We do not expect that the US central bank will begin any easing sooner than Q2 of 2024, continuing to buoy the Buck a bit.
What to Watch Today…
- US Housing Starts, Friday 8:30 AM
- Eurozone CPI, Friday
- Monex USA Online is always open
Caught between twin specters of central bank debates and Chinese macroeconomic questions, the Australian and New Zealand Dollars are the biggest losers against USD on the G10 board. Chinese housing prices fell more than expected, depressing the Antipodeans even after manufacturing data from the world’s second-largest economy was stronger than market expectations earlier this week. Australian employment did come in substantially above average projections, but unemployment also ticked up.
Though this morning’s price action for the single currency is relatively muted, the Euro gained roughly a quarter of a percent against the USD overnight and into the morning. Prices do remain off the highs seen Tuesday as central bank expectations remain the name of the game for the EUR/USD pair. Traders do see the ECB switching over to policy easing on the front side of central banks around the world, capping off upward potential for the EUR barring any surprises.