After falling much of yesterday, the U.S. dollar rebounded modestly against a number of its rivals. Analysts struggled to find definitive reasons for the dollar’s demise over the past 24 hours even after election results in Italy were decidedly anti-EU. Overall, the greenback’s solid run since the American election last month appears to be over. We expect the U.S. dollar to establish more moderate ranges ahead of the Federal Reserve’s interest rate decision on December 14th. Fed Futures show an anticipated 100% chance the central bank hikes rates by a quarter of a percent.
Yesterday’s economic data beat expectations service ISM touching its strongest level in 13 months. Positive outcomes from today’s docket could allow the greenback to regain some of its momentum. Factory orders are expected to have risen 2.6% in the month of October, up from 0.3% in the month prior. Durable goods orders, a proxy for future investment, are expected to have expanded 3.4% in October, down from an impressive 4.8%. The core reading, excluding volatile transportation orders, are expected to register a 0.5% gain.
The Euro retreated somewhat overnight, but remains near its three-week high against the U.S. dollar from yesterday. The common currency whiplashed in large ranges yesterday following the “no” vote on Italy’s referendum. The Euro slipped to a 20-month low as markets opened, but the currency quickly recovered and push to fresh highs against the U.S. dollar.
Traders appear to now be focusing on this week’s European Central Bank meeting. The ECB is expected to announce an extension of asset purchases at the current pace of 80 billion euros a month. However, there is some speculation that the central bank will announce an end date for its quantitative easing, boosting the Euro.
The British pound extended its gains from yesterday and touched a two-month high against the U.S. dollar overnight. The sterling has gained for six consecutive days against the greenback. The strength comes as the British High Court said that parliament should be allowed a vote before Prime Minister May officially starts the “Brexit.” Now the Court is set to rule whether lawmakers will get a say in the process. Nevertheless, uncertainty over whether the U.K. will be able to negotiate the ability to stay within the E.U.’s single market will keep the sterling from recouping much of its steep losses from earlier this year. The pound remains 16% lower versus the dollar since before the “Brexit” vote in June.