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October 2017

US Dollar fails to strengthen

Published: Thursday 12 October 2017

  • US Dollar fails to strengthen 
  • Euro shrugs off Catalonian political troubles
By Zafer Deniz
 
 
The Federal Open Market Committee (FOMC) released their minutes and according to the report, many Federal Reserve officials saw another rate hike this year as warranted, with US stocks nearing record highs and officials don’t see the storms knocking the US economy off track. Federal Officials also saw wages rising, which should help boost future inflation. The US Dollar failed to strengthen after the minutes, as instead the market focused on the wording “many officials were concerned that the low inflation is not transitory” and thought a prudent path would be to show patience and delay rates hikes until inflation ticks higher. US Retail Sales and Inflation figures will be released on Friday and will be watched closely in order to determine the future Federal Reserve interest rate path.  In addition, the situation with North Korea is likely to worsen in the coming days which could see a USD sell off, as North Korean foreign minister said Donald Trump has “lit the wick of a war.”
 
The best performing currency yesterday was the Euro, which completely shrugged off Catalonian political troubles. Investors appear to like the Spanish Prime Minister Rajoy’s firm response to the region for independence, as illegal and a violation of the constitution. Spain’s PM gives Puigdemont until Monday to clarify whether he has declared independence under article 155. Declaring independence could see the Spanish Government rescind their political autonomy. The main event for the Euro will be European Central Bank (ECB) President Draghi’s Speech today at 3.30 PM. PM Draghi is due to participate in a panel discussion about monetary policy. Many analysts believe the ECB is gearing up to announce a reduction of stimulus at the end of the month, as a result, a less hawkish tone could see the Euro being sold off.
 
There were no UK economic reports released yesterday and no tier one data being released between now and Tuesday, so the GBP is likely to get its cue from further Brexit discussions. The markets are still pricing in a 75% chance of an interest rate hike in November and an 80% chance of a hike before the end of the year. Many analyst believe that even if the UK does raise rates, it will be a case of ‘one then done’, which will only be reversing the Bank of England’s pre-emptive rate cut after the Brexit announcement.
 
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Quote for the day
 
“When it comes to plastic surgery and sushi, never be attracted by a bargain”.
Graham Norton

Today's major economic releases

Market BST Data/Event Previous Expected
GBP 09:30 Bank of England Credit Conditions Survey    
EUR 10:00 EU: Industrial Production  0.1% 0.6%
CAD 13:30 Canada: New Housing Price Index 0.4% 0.3%
USD 13:30 US: Producer Price Index 0.2% 0.4%
USD 13:30 US: Core Producer Price Index 0.1% 0.2%
USD 13:30 US: Unemployment Claims 260k 251k
EUR 15:30 European Central Bank President Draghi Speaks    
USD 15:30 Federal Open Market Committee Member Brainard Speaks    
USD 15:30 Federal Open Market Committee Member Powell Speaks    
USD 16:00 US: Crude Oil Inventories -6.0m -1.9m
NZD 22:30 New Zealand: Business Manufacturing Index 57.9 57.9

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