The U.S. dollar experienced a wild ride yesterday. The greenback weakened across the board following the release of weak retail sales and soft inflation data. However, the U.S. dollar recovered all of those losses in the afternoon after the Federal Reserve hiked interest rates for the second time this year. The move was widely expected so the dollar strength can be attributed to slightly hawkish comments by the Fed Chair Janet Yellen. It is also worth noting that Yellen said that she has not spoken with President Trump about her job but that she expects to serve a full term. Yellen’s term will expire early next year. Yellen’s Fed and President Trump have widely differing forecast for GDP growth. The central bank expects growth near 2% over the next three years, while Trump has held he expects 3.0% growth.
Market participants are also keeping a partial eye on political developments. A number of unnamed sources have stated that special counsel Robert Mueller is investigating Trump for possible obstruction of justice and has already interviewed senior intelligence officials.
Today’s economic docket should allow the greenback to continue yesterday afternoon’s momentum. The Philadelphia Fed Business Outlook ticked higher and the Empire Manufacturing index far outpaced expectations. Later this morning, Industrial production is expected to show 0.2% growth.
Commodity-based currencies from Canadian dollar to South African rand are under pressure this morning as the Bloomberg’s commodity index fell to the lowest level in more than a year. West Texas crude is a half a percent lower, under $45 a barrel and putting pressure on the Canadian Dollar.
The Mexican peso dropped nearly a percent after reaching a 10-month high yesterday.
The Australian dollar was the one commodity-backed currency to avoid losses after an employment report showed job growth surged in May.
The British pound briefly soared higher this morning before giving back some of its gains. As widely expected, the Bank of England kept its interest rates unchanged. However, three of the eight members voted to increase rates. The vote represents a widening divide among policy makers, boosting the sterling. Kristen Forbes was the lone member who sought to raise rates last month. The central bank is challenged to combat increasing inflation pressures with stagnant wage growth. The wage issue was highlighted earlier in the day after a report showed U.K. retail sales excluding auto fuel dropped 1.6%, the most this year.