A combo of improved risk appetite and weak domestic prospects dragged the dollar lower last week. Will this week’s potential catalysts bring it back up?
Retail sales (Jan. 16, 1:30 pm GMT)
Retail activity clocked in a 0.2% growth in November, slower than the 1.1% gain we saw in October.
The core figure, which excludes automobiles, gasoline, building materials, and food services inched up by 0.2% after a 1.0% jump in the previous month.
This week market geeks expect to see the headline rate accelerate from 0.2% to 0.3%. Meanwhile, the core figure is expected to maintain its 0.2% monthly rate in December.
The retail sales report correlates closely with the consumer spending part of Uncle Sam’s GDP, so you can bet that a lot of traders will be watching the release.
Manufacturing-related reports
Over the next couple of days, we’ll see lower-tier economic reports that might give us clues on the health of Uncle Sam’s manufacturing sector.
The PPI report (-0.1% expected, 0.1% previous) is first today, followed by the Empire State manufacturing index (11.6 expected, 10.9 previous). Then, a business inventories (0.3% expected, 0.6% previous) report will be printed on Wednesday.
Meanwhile, the industrial production (0.3% expected, 0.6% previous) and capacity utilization rate (78.6% expected vs. 78.5% previous) are scheduled for release on Friday.
Keep your eyes glued to the tube in case traders react to these releases!
Last Week’s Price Review
Pressure was on the U.S. dollar all week versus most of the major currencies, but opposing currency price action had a lot to say on the varying degrees of how weak the dollar performed.
Major Market Drivers for the U.S. Dollar
First, global risk sentiment was on the rise towards positive this week, likely on a combination of positive signs of a deal forming between the U.S. and China on trade issues, and arguably on the idea that monetary policy conditions will remain relatively easy as the Fed looks to be patient with raising interest rates, the ECB unlikely to hike before mid-2020, and the People’s Bank of China will start lending money to banks to stimulate the Chinese economy. It this type of environment, the U.S. dollar tends to under perform given its “safe haven” status among traders, motivating them away from the Greenback to riskier assets and/or higher-yielding plays.
So, the pressure was likely on with these big themes in play, and from a more domestic view, issues like the partial government shutdown drama, a surprise drop in services sentiment and a drop in consumer prices data possibly contributed to the Dollar’s weakness this week.
Price action among USD pairs was pretty mixed, rightfully so as this week was a busy one for the other majors, whether it was the strong rise in oil price to help support the Loonie, Brexit drama pushing around Sterling, or the positive risk environment really giving the Aussie and Kiwi a lift.
But one arguable instance of uniform price among USD pairs came on Wednesday when various Fed members spoke at different events on the outlook on interest rates, all relaying pretty much the same message that policy makers can wait on future rate hikes and will continue to monitor the data. The dollar sold off broadly to end the Wednesday trading session on its lows into Asia trade.
United States Headlines and Economic data
- US services sector grows at slowest pace since July
- Fed’s Bostic sees one US interest rate increase this year
- US December NFIB small business optimism index 104.4 vs 103.0 expected
- Job openings on the decline but still outpace available workers by more than 800,000
- Fitch warns of possible cut to US triple-A rating if shutdown continues
- Fed’s Bullard Warns More Rate Rises Could Lead to a Recession
- Trump calls meeting with Chuck Schumer and Nancy Pelosi a ‘total waste of time’ after he storms out
- Fed’s Evans repeats view that Fed can wait on rate hikes
- Jobless Claims Fall to Four-Week Low in Tight U.S. Labor Market
- Fed chair Jerome Powell says he’s worried about rising US debt
- Fed at ‘end of road’ on rate hikes, Bullard says
- US consumer prices drop for the first time in nine months
- Fed wouldn’t wait too long responding to overseas slowdown -Clarida