Despite Friday’s weak CPI inflation print, the dollar performed strongly in the first half of the week, aided by above-consensus retail sales numbers and hawkish comments from NY Fed Dudley suggesting that he would support a further hike in 2017 if the data warranted it, notes the analysis team at Nomura.
Key Quotes
“Nonetheless, these gains were reversed in part later in the week by dovish FOMC minutes and continued political turbulence in Washington.”
“Wednesday’s FOMC minutes showed continued uncertainty on inflation with ‘many participants’ seeing some likelihood inflation could remain below 2% for longer than currently expected, with risks tilted to the downside. Inflation prints between now and the December meeting remain highly important for the FOMC and the market. There were also discussions on financial conditions, despite having increased rates three times since December, financial conditions have eased in the US. Finally, there was a continued consensus on balance-sheet reduction at September’s FOMC meeting. Based on the minutes, and our expectations that the August CPI data will not contain another large downward surprise and that financial conditions do not change drastically, our economists’ maintain their call for a December rate hike.”
“President Trump has faced a challenging week in the White House. Meanwhile, the 29 September deadline Mnuchin has set for the debt ceiling bill to be passed approaches. Our economics and rates teams find that the risks of breaching the debt limit are lower than in 2011 and 2013, but slightly higher than in 2015. FX markets and FX vols tend not to react in the same way that Treasuries have ahead of debt ceiling limit breaches, and historically debt negotiations do not become serious until the closing bell gets much closer. Tail risk hedges are unlikely to build during the August recess, but if discussions show signs of deadlock in September, then the market may begin to take notice.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
GBP/USD remains on the defensive below 1.2450 ahead of UK Retail Sales data
GBP/USD remains on the defensive near 1.2430 during the early Asian session on Friday. The downtick of the major pair is backed by the stronger US Dollar as the strong US economic data and hawkish remarks from the Fed officials have triggered the speculation that the US central bank will delay interest rate cuts to September.
EUR/USD extends its downside below 1.0650 on hawkish Fed remarks
The EUR/USD extends its downside around 1.0640 after retreating from weekly peaks of 1.0690 on Friday. The hawkish comments from Federal Reserve officials provide some support to the US Dollar.
Gold: Middle East war fears spark fresh XAU/USD rally, will it sustain?
Gold price is trading close to $2,400 early Friday, reversing from a fresh five-day high reached at $2,418 earlier in the Asian session. Despite the pullback, Gold price remains on track to book the fifth weekly gain in a row.
Bitcoin Price Outlook: All eyes on BTC as CNN calls halving the ‘World Cup for Bitcoin’
Bitcoin price remains the focus of traders and investors ahead of the halving, which is an important event expected to kick off the next bull market. Amid conflicting forecasts from analysts, an international media site has lauded the halving and what it means for the industry.
Israel vs. Iran: Fear of escalation grips risk markets
Recent reports of an Israeli aerial bombardment targeting a key nuclear facility in central Isfahan have sparked a significant shift out of risk assets and into safe-haven investments.