The United States Dollar begins this morning relatively flat after sliding a bit overnight but is recovering some ground after retail sales for the month of July rose 0.7%, above the market consensus estimate.
Overview
The figure helps highlight the unexpected resilience of the US economy – as of now, three in four economists are predicting a “soft landing” or even no landing at all rather than the recession that seemed inevitable earlier this year.
With inflation trending downward, and all major economic indicators still showing signs of growth, the Federal Reserve has fairly substantial wiggle room in its policy decisions for the remainder of the year. After this morning’s reading, the odds of a rate hike in either September or November have increased a bit, up from a roughly 30% chance to closer to an even 50/50 split. The Fed, more so than most G10 economies, truly has room to take the “data-driven” approach that central banks have been espousing as of late.
Elsewhere around the world, wage signals out of the UK and economic surveys from Germany and the Eurozone paint a more complicated picture. Wages in the UK continue to rise faster than their government would like, and economic sentiment both in Germany and the wider Eurozone is, frankly, dismal. It’s safe to say the narrative of US outperformance of global economic conditions is still valid and may continue to hold weight and drive markets until the Fed signals the end of its tightening cycle
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What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
GBP ⇑
Pound Sterling is gaining against USD this morning to the tune of roughly half a percent since yesterday’s close, and three-quarters of a percent since yesterday’s intra-day low price. This morning’s release showed wages in the UK grew at the fastest pace on record. This could change the calculus of the Bank of England, who slowed its hiking pace to 25 basis points earlier this month. After today’s reading, it’s entirely possible the BoE will have to switch back to a 50-basis-point hike at its next meeting, even as the UK teeters close to recessionary territory, to combat the ongoing cost-of-living crisis.
CAD ⇑
After starting the day on the back foot, the Loonie has reversed losses against USD and is now gaining as data showed that headline inflation grew 0.6% in July, double its estimated pace. The annual reading also posted a 3.3% gain, over expectations by 0.3%. The Bank of Canada cannot be happy to see this resurgence in inflation – market odds now are pricing a 30% chance of a rate hike from the BoC next month, a marked increase from last week.
