The U.S. Dollar is pivoting downward following the release of truly disappointing inflation and retail sales data. Monthly Consumer Price Index figures showed no expansion and the year-on-year CPI increased by 1.6% under the estimated 1.7%, which suggests inflationary growth is not increasing near the desired pace by the Fed of 2.0%.
Furthermore, Retail Sales really surprised us with contraction instead of any improvement, which economists expected. June’s numbers were supposed to show 0.4% growth, but fell by (-0.1%). At the time of writing, the Bloomberg Dollar Spot Index was headed towards a half percent loss immediately after the indicators hit the wire.
Fed Head Janet Yellen’s testimony this week to the congressional Housing Committee already casted doubt on the economy and the Fed’s approach to future hikes, but these numbers certainly lower the chances of a Fed rate increment by end of the year to just 43.9%. With distractions in Washington as political infighting takes over headlines and the economic reality of poor consumption, the greenback is starting to feel the pressure and we see little chance of much recovery from current ranges in the next few weeks.
The Euro is now up 1.1% for the month of July, slowly but surely appreciating as a result of better economic performance and hopes of monetary policy tightening. Today happens to be Bastille Day in France, so we may not get much in terms of news out of the Old Continent. CPI numbers for Italy came out as predicted, so if even Italy has growth it does not bode well for the buck against the shared currency, which could climb further as the day goes on.
The Pound is on the rise also as a result of poor economic performance in the United States. Additionally, Bank of England’s Ian McCafferty sounded the trumpet of hawkish sentiment after he expressed his belief that the central bank should start winding down some its sovereign bond purchases from QE.
It would be way too early to take such action since rates have not been increased and would require levels near where the Fed is. However, this discord between BOE members is convincing traders that the bank will likely not maintain its easing stance much longer.
Brexit-wise, Britain has finally admitted on paper that indeed an amount of money will need to be paid for the divorce process to start going, if possible in any way, somewhat smoothly. The EU has estimated a required payment of about EUR 100.0 billion. While many surrounding PM Theresa May disagree with the quantity, it is an important step toward talks getting better and with less friction.