It is a busy afternoon for the dollar and US macro releases ahead of the Thanksgiving holiday on Thursday. The dollar has extended its gains further and is set to end higher for the fifth consecutive week, supported by rising yields amid faster tapering expectations, stronger data and troubles for the eurozone with surging covid cases.
Commodity dollars also declined amid the ongoing risk-off tone being emitting by slumping technology stocks and rising bond yields in the US, where the Fed is expected to up its pace of tapering. The euro and German stocks slid on reports Germany is considering a lockdown as cases there continue to surge. France is set to announce its own measures on Thursday, although it is unlikely to be another lockdown.
In fact, Jerome Powell’s re-appointment as the Fed’s Chair means Biden has chosen the slightly more hawkish central bank chief out of the two candidates. We have already seen the market respond to this earlier in the week as bond yields and the dollar both jumped, while technology stocks sold off – a trend that has continued until at least today. We will need to see if the Fed will in fact speed up the tapering process now. Inflation had reached its highest level since 1990 at 6.2%. It is becoming very difficult to justify keeping monetary policy this loose for much longer. If the Fed does start to taper QE faster, then this may provide even more energy to the dollar rally.
This afternoon it will all be about the US economy as we will have some important data to look forward to.
- The Fed’s favourite measure of inflation: the core PCE price index. The latter should move the dollar if it shows a big print. Over the past four months, it has stabilised around 3.6% year-over-year. But if it starts to accelerate to the upside again, then this will raise serious question markets over the Fed’s “transitory” inflation outlook. Analysts expect a 4.1% reading this time. We will also have the latest personal income and spending numbers, new home sales and crude oil inventories.
- Meanwhile, today’s other US data releases that have just come out, have been mixed. Preliminary GDP (second estimate) was revised higher to 2.1.% from 2.0% but fell short of expectations for an even stronger print of 2.2%. Durable goods orders also missed the mark, while jobless claims beat – at least on the headline. Initial claims printed 199K vs 260K expected, while continuing claims disappointed at 2049K vs. 2033K eyed.
- We will also find out exactly how concerned the Fed was about inflation in their last policy sitting, when they decided to start the taper process. If the FOMC meeting minutes reveal some policymakers supported a faster pace of tapering because of concerns over inflation, then this may indicate willingness to speed up QE reduction in the months ahead, should inflation or the economy warrant it.
Among the dollar pairs, the USD/CHF
is catching my attention today as it has broken its bearish trend line and may be about to explode to the upside:
Source: ThinkMarkets and TradingView.com
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