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Why, thank you FOMC! The U.S. dollar recovered from its weak start this week when the minutes of the December Fed meeting supported rate hike hopes.

It also helped that the ISM manufacturing PMI turned out stronger than expected and kept positive NFP expectations in play.

  • ISM manufacturing PMI rose from 58.2 to 59.7 in Dec vs. 58.1 consensus
  • U.S. construction spending up 0.8% vs. 0.6% estimate, 0.9% previous
  • U.S. total vehicle sales climbed from 17.5M to 17.9M
  • FOMC minutes: Gradual rate hikes are still in order
  • FOMC minutes: Several policymakers concerned about weak inflation
  • FOMC minutes: Stronger inflation from tax cuts could be reason to hike more

Major Events/Reports

Upbeat U.S. data

The scrilla woke up on the right side of the bed today as it was greeted by stronger than expected economic data.

First off, the ISM manufacturing PMI rose from 58.2 to 59.7 in December to reflect a stronger pace of industry expansion instead of dipping to the estimated 58.1 figure. The prices component advanced from 65.5 to 69.0 to indicate higher inflationary pressures while the jobs component dipped from 59.7 to 57.0.

The rest of the components showed acceleration, except for inventories which contracted at a slower pace. The index for customer’s inventories already ran too low by ISM’s standards, which suggests that businesses could ramp up production even further to replenish those stockpiles.

Next up, construction spending also came in a couple of notches higher than expected at 0.8% growth versus the 0.6% consensus. This was lower than the previous figure, though, which was downgraded from 1.4% to just 0.9%.

Lastly, total vehicle sales also beat expectations by jumping from 17.5 million to 17.9 million instead of staying unchanged. Stronger spending on big ticket items like these is usually indicative of optimism among consumers.

December FOMC minutes

There were still plenty of doubts about the Fed’s future rate hikes at the beginning of the year, but dollar bulls seem to have found assurance from the minutes of the latest FOMC meeting.

As it turned out, the outlook was generally unchanged and most of the members still supported the idea of gradual rate hikes. Many are worried about the weaker inflation outlook, but some pointed out that the tax reform package could spur price levels enough to even warrant a faster pace of tightening.

Apart from that, several members also reiterated that the strengthening labor market could continue to support inflationary pressures. In particular:

“A few participants judged that the tightness in labor markets was likely to translate into an acceleration in wages; however, another observed that the absence of broad-based upward wage pressures suggested that there might be scope for further improvement in labor market conditions.”

Others argued that failure to reach the 2% inflation target could be a reason to slow tightening down the line.

A couple of participants voted against the December hike. Read the full text of the December FOMC minutes right here.

Another good day on Wall Street

U.S. equities chalked up another stellar performance, with all three indices logging in solid gains and record highs for the day.

  • Dow 30 index is up 98.67 points to 24,922.68 (+0.40%)
  • S&P 500 index is up 17.25 points to 2,713.06 (+0.64%)
  • Nasdaq is up 58.63 points to 7,065.53 (+0.84%)

Tech sector giants such as Alphabet (read: Google) and IBM once again led the gains, buoyed by corporate tax cut expectations and the idea of seeing gradual rate hikes from the Fed.

Crude oil also drifted higher on another day of unrest in Iran, which threatens to keep a lid on production and global supply.

  • WTI crude oil is up to $61.78 per barrel (+2.34%)
  • Brent crude oil is up to 67.89 per barrel (+1.98%)

Major Market Mover(s):

USD

The dollar was in recovery mode as it got a boost from upbeat data and the not-so-downbeat FOMC minutes.

EUR/USD retreated from a high of 1.2035 to a low of 1.2001, USD/JPY popped up to 112.73, USD/CHF is up to the .9800 handle, and GBP/USD fell from 1.3587 to a low of 1.3494.

JPY

In contrast, the Japanese yen returned some of its recent gains as bond yields leaned in favor of the U.S. dollar, its safe-haven rival.

EUR/JPY is up from 134.80 to a high of 135.36, AUD/JPY advanced to 88.16, CAD/JPY is up to 89.27, and GBP/JPY found support at 151.75 to climb back to 152.25.

Watch Out For:

  • 12:30 am GMT: Japanese final manufacturing PMI (no change from 54.2 expected)
  • 1:45 am GMT: Chinese Caixin services PMI (dip from 51.9 to 51.8 expected)