The U.S. Dollar is trading downward, falling slightly based on renewed risk appetite and optimism about the short term.
Overview
At the time of writing, inflation in the form of the Consumer Price Index from November showed a small uptick of 0.1%, staying close to flat as expected. Annual CPI went from 3.2% to 3.1%. There were no major surprises to the reading as consumer items such as food, clothing, and energy costs fell, while Housing climbed. Used car prices also jumped after having declined the month prior. In general, there does not seem to be a turn towards deflation, so the Buck looks to be trying to erase some of its morning losses.
Nevertheless, the risk-takers out there welcome outlooks that deem inflation a problem of the past, suggesting that a reduction in prices all across the board is coming for the new year. We shall see if this presents itself tomorrow in Producer Price Index figures, which are expected to not have gone up last month. More importantly, the Federal Reserve will announce its decision tomorrow while holding a conference a 2 PM to address the press.
Any dovishness may be interpreted right away as a negative for the Buck, but if Chair Jerome Powell’s tone matches his most recent statements that the Fed is willing to be hawkish if needed, we can see the Buck re-strengthening. On the emerging markets front, it is worth mentioning that a global push towards higher productivity is already causing a tightness in the supply of copper. This may play a negative for the greenback. Expect high volatility as we move toward the endgame.
What to Watch Today…
- FOMC Meeting & Presser Wednesday 2 PM
- Monex USA Online is always open.
MXN ⇑
The Mexican Peso climbed as commodities improved in price and the economic data out of the country recorded yet further expansion. Industrial Production output for October grew a surprising 5.5% instead of the 4.1% estimated. On Thursday, Banxico, the central bank, will also be making its policy decision and talk about its mentality going forward. We see little to no reason why officials would hint at cutting interest rates anytime soon. A talk of pivot in any way would be a surprise and rally the Dollar.
EUR ⇑
The Euro moved up a bit after the CPI reading in the U.S. this morning and is mostly at the mercy of what occurs tomorrow during the Fed meeting. Not to forget, the European Central Bank, along with the Bank of England, will be talking about their policy meetings and thinking on Thursday. As we enter a crucial part of the month and year-end, we will see how outlooks fare on inflation and other indicators. As expectations of prices headed down grow, the Buck could be threatened by a jump towards riskier assets without fear of higher borrowing costs. However, if economic struggles are mentioned, and recessionary pressures by either central bank authority, the Dollar could have a tremendous comeback from its losses in November.
