Central bankers continued to make waves during the New York session, and this time it was hawkish Fed rhetoric that traders paid attention to. Economic reports from Uncle Sam and record closes for equity indices also contributed to dollar strength.
- U.S. import prices up 0.7% vs. 0.6% forecast in Sept
- U.S. industrial production advanced by 0.3% as expected
- U.S. capacity utilization rate ticked higher from 75.8% to 76%
- U.S. NAHB housing market index improved from 64 to 68
- FOMC member Harker: Very little slack left in labor market
- Harker: Participation rate likely to fall a couple of tenths of a percentage point over time
- Fed official Kaplan: Looking for evidence inflation can hit 2% in medium term
- Kaplan: Keeping an open mind about rate hikes
Relatively upbeat Fed remarks
A couple of FOMC voting members shared their thoughts on the economy and monetary policy, both of which suggested openness to a December hike.
FOMC member Harker mentioned that he sees “very little slack” in the labor market and projected that the participation rate could fall by a couple tenths of a percentage point over time.
However, he also clarified that the tight labor market situation on a national level might not be reflective of realities in certain areas around the country. From there, he went on to emphasize the role of transportation in supporting jobs and overall economic health.
Meanwhile, FOMC member Kaplan wrote in an essay published on the Dallas Fed website that he is still waiting for evidence that inflation can reach 2% in the medium term. He also shared that:
“I will be closely watching this measure in the months ahead in order to confirm that recent weakness is indeed transitory and that we are continuing to make progress in reaching our inflation objective.”
Kaplan concluded that “structural forces, particularly slowing workforce growth due to an aging population, will continue to pose challenges for future economic growth” which is why he maintains that “future removals of accommodation should be done in a gradual and patient manner.”
Mostly positive U.S. data
Medium-tier reports from the U.S. turned out mostly in the green, underscoring tightening expectations for the Fed.
Industrial production rose by 0.3% as expected in September while the previous reading was revised to show a smaller 0.7% dip compared to the initially reported 0.9% fall.
Components of the report suggested that the recent hurricanes dampened production, although manufacturing output and indices for mining and utilities still increased.
Import prices rose 0.7% in September, a notch higher compared to the estimated 0.6% uptick. This marked its largest pace of increase since June last year, buoyed by significant gains in prices of fuel and non-fuel imports.
Capacity utilization rose from 75.8% to 76% versus the estimated rise to 76.2% which signals slightly lower pressure on producers to raise costs and pass these on to consumers.
U.S. equities tested record highs, with the Dow trading briefly above 23,000 for the first time.
- Dow 30 index is up 40.48 points to 22,997.41 (+0.18%)
- S&P 500 index is up 1.72 points to 2,559.36 (+0.07%)
- Nasdaq is down 0.35 points to 6,623.66 (-0.01%)
Slow progress on NAFTA talks
Canada and Mexico rejected the latest set of U.S. demands on NAFTA, leading market participants to project that the talks could extend way past the end of this year.
The parties are currently at their fourth round of talks as the Trump administration insists on preventing manufacturers from Canada and Mexico to create cross-border supply chains before the products are assembled in a final location.
This trade deal has actually been in place for decades and has contributed to the region’s $1.2 trillion trade activity. U.S. Trade Representative Robert Lighthizer says that the agreement needs to be rebalanced, so another round of talks is scheduled on November 17-18.
Major Market Mover(s):
Sterling continued to drop at the start of the U.S. session before sellers took a break and booked some profits halfway through.
GBP/USD bounced off a low of 1.3154 to 1.3195, GBP/JPY found support at 147.80, EUR/GBP consolidated around .8925, and GBP/AUD is trying to keep its head above the 1.6800 mark.
The Kiwi returned some of its recent gains when the GDT auction came along since it yielded a 1.0% drop in dairy prices.
NZD/JPY dipped from a high of 80.64 to a low of 80.27, EUR/NZD popped up to a high of 1.6437, AUD/NZD bounced off 1.0925 to 1.0944, and GBP/NZD found support at 1.8400.
After a rocky start, the Canadian currency pulled off a relatively strong finish as NAFTA talks broke down.
USD/CAD hit a high of 1.2592 before sliding to 1.2500, CAD/JPY rallied from a low of 89.19 to a high of 89.86, EUR/CAD is down to 1.4713, and GBP/CAD slipped below 1.6500.
Watch Out For:
- 12:30 am GMT: Australia MI leading index m/m (-0.1% previous)