After falling across the board on the release of weak inflation data on Friday, the U.S. dollar made up some ground overnight. The Consumer price index failed to meet expectations for the fifth consecutive month and caused traders to further reduce their bets that the Federal Reserve will raise interest rates again this year. Odds for a 25 basis point hike in December dropped to 30.2% from 41.8% last Monday.
Traders are crediting cooling tensions with North Korea for the greenback’s bump overnight. National Security advisor H.R. McMaster looked to tamp down the President’s “fire and fury” rhetoric saying that we are “no closer to war than a week ago.”
The tragic events in Charlottesville, VA and the fallout have had little to no-effect on currency markets.
While there is no major data slated for release today, the rest of the week is jammed packed full of risk events. Tomorrow, Retail sales and Empire manufacturing are due out, followed by Housing starts and the FOMC’s minutes from its last interest rate decision. Industrial production will cross the wires on Thursday morning and consumer sentiment will round out the week on Friday. The central banker symposium in Jackson Hole will take place this weekend so headlines from the event will have a direct impact on the dollar’s Monday open.
The safe-haven Japanese yen and Swiss Franc both fell across the board as easing tensions on the Korean peninsula allowed global stocks to tick higher, weakening demand for the perceived safety of the two currencies. Indeed, European stocks are up nearly 1.0% and American futures point towards a higher open.
The yen’s fall was softened somewhat as a report showed the Japanese economy growth for the sixth straight quarter. Japan’s annualized growth was 4.0% in the second quarter. However, with inflation still under the Bank of Japan’s target, do not expect any policy changes in the foreseeable future.
The British pound traded in muted ranges overnight but is poised for a busy and perhaps volatile week. Consumer prices will be released tomorrow. Inflation pressures are expected to stay slightly above the Bank of England’s 2.0% target. Higher price pressures could lead to a larger split among policy makers on when the central bank should increase borrowing costs. However, even the biggest policy hawks have recently expressed concern that “Brexit” is holding back the U.K. economy. Hawk Michael Sunders said that he believes Brexit could cost the U.K. “five percentage points over a 15 year period.