As data releases finally picked up steam for the week yesterday and today, the United States Dollar is losing ground across the board against the G10 this morning.
Eurozone core inflation hit a one-year low this morning, falling to 4.5% versus 4.8% percent expected. Headline inflation fell substantially as well, moderating to 4.3% from 5.2% expected. US personal income and spending data, as well as the Fed’s preferred inflation gauge of PCE, all came in dead on expectations and showed that the US economic picture is cooling to the extent that the Federal Reserve would like to see. The Dollar is losing on the news as it becomes more likely than not that the Fed will hold interest rates steady on November 1 rather than instituting one final 25 basis point hike.
Though the Bloomberg Dollar Spot Index has fallen 0.4% this morning, its weekly advance is still in the black, and BBDXY is set to post a 2.5% gain through the end of this quarter. Today’s downturn for USD is more to the tune of a retracement rather than a real change of fortune, and markets still believe in the Dollar comparatively rather than any of the other majors. The global mood remains quite gloomy, and historically when that is the case, the Buck remains king as traders search for real returns rather than leaning more toward speculation. Michigan’s consumer sentiment survey is also due out at 10 AM today, likely to show souring sentiment domestically as well.
As we’ve discussed over the past few weeks, the US finds itself better off economically than the rest of the world, but domestically the picture does remain quite far from rosy. Consumer debts are piling up, real spending is continuing to decrease as more and more the effects of consistently high inflation are affecting American wallets. This ‘best of the worst’ scenario is likely to keep the Dollar strong through next quarter.
What to Watch Today…
- No major economic events are scheduled for today
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Continuing their recent streaks of quite high volatility trading days, the Australian and New Zealand Dollars are both gaining against the Buck to the tune of roughly one percent overnight and into this morning. Month-end flows are dominating the pairings, and softening treasury yields are keeping the Dollar depressed. Consumer confidence inside New Zealand actually rose in September, a marked departure from the rest of the world.
It appears Pound Sterling has finally found a floor and managed to stave off further losses, gaining a third of a percent against USD this morning. The UK’s money supply contracted for the first time in 13 years in August, a real warning sign that a recession inside the UK may be coming. This is admittedly bad news on a larger scale, but it does tell markets that the Bank of England may have actually made the correct move in holding interest rates steady last week.