The U.S. Dollar is weakening as markets react to surprises to the Consumer Price Index print from earlier this morning.
Inflation for October flattened instead of expanding by 0.1% as expected, thus bringing down the annual average from 3.3% to 3.2%. Overall, this means that the Federal Reserve’s contractionary policy has effectively caused disinflation to the point where you may start seeing some prices dwindle.Subsequently, it means the Fed can truly take its foot off the gas when it comes to hiking interest rates and data will be monitored for the next couple of months to see if it is necessary to pivot from a hawkish stance to a more dovish one. The odds of a cut to interest rates by the March FOMC meeting stand at 28.0%. Naturally, this bodes poorly for the Buck as monetary policy goes away as a boost to its value. All eyes and ears tomorrow will be on any developments and statements to come from the meeting between U.S. President Joe Biden and China’s President Xi Jinping. Trade, technology, and even military cooperation will be on the table. This will be accompanied by plenty of economic indicators out of China as well as Retail Sales out of the U.S. Per the Bloomberg Dollar Spot Index, we are currently experiencing the weakest Dollar since September 20th.
What to Watch Today…
- Biden speaks with Xi tomorrow
- U.S. Retail Sales and PPI Wednesday
- U.K. CPI Wednesday
- Monex USA Online is always open
The Euro climbed to its strongest level since the end of August following the shock in CPI data out of the U.S. Unfortunately, we wonder how long the rally can last for the shared currency with Gross Domestic Product readings for the third quarter revealing a contraction of (-0.1%). It seems as if markets are welcoming the idea of less contractionary policy out of the U.S. which contrasts with a determination by the European Central Bank to keep tightening until inflation is truly tamed. A positive note would be that per November ZEW Surveys, Germans saw their current situation as unsatisfying, yet they looked more optimistic about things to come down the line as we enter a new year.
The Pound is rising as the effects of deeper disinflation in the U.S. reverberate all across FX flows and other exchanges. Additionally, there was also a bit of disbelief in the change to Payrolled Employees from October with an increase of 33K jobs while a loss of (-17K) was forecast. Furthermore, Average Weekly Earnings ticked up by 7.9% vs. just 7.3% expected. We shall see how much room the Buck has to lose as Sterling hit its strongest point over the dollar since mid-September at the time of writing.