Daily Market Update

Dollar Holds Yesterday’s Gains Ahead of Fed Minutes

August 16, 2017

The U.S. dollar was largely able to hold on to yesterday’s gains.  The greenback shot higher early yesterday after a report showed advanced retail sales doubled expectations.

 

USD

The U.S. dollar was largely able to hold on to yesterday’s gains.  The greenback shot higher early yesterday after a report showed advanced retail sales doubled expectations. Today’s economic data will not help the greenback’s chances of sustaining a modest rally.  Housing starts fell by 4.8% in July failing to miss estimates of a 0.4% gain.  The June print was also revised downward.

The data will take a backseat to this afternoon’s release of the Federal Reserve minutes from their July meeting.  Market participants will pour over the minutes for signs of when the central bank will move to reduce their $4.5 trillion balance sheet.  On Monday, Fed member William Dudley said that it is reasonable to expect the Fed to address their plan at their next meeting in September.

 

EUR

The Euro traded slightly weaker overnight but remains near levels seen yesterday after the strong U.S. retail sales crossed the wire.  Euro-area gross domestic product rose 0.6% in the second quarter, right in line with expectations.  Spanish growth surprised to the upside, showing that growth is coming from more peripheral members.  The Dutch economy grew 1.5%, the most since 2007.

Despite the decent numbers, traders have decided to shift their focus to this weekend’s summit of central bankers in Jackson Hole, WY.  Some had expected ECB President Mario Draghi to delivers a fresh policy message, but Reuters is reporting Draghi will honor the Governing Council’s decision to hold off discussion until the autumn.

 

GBP

After selling off nearly a full percent yesterday on the back of weak inflation data, the British pound was unable to rebound overnight despite decent jobs data.  The U.K.’s unemployment rate fell to 4.4% in the second quarter, marking the lowest rate of unemployment in over four decades.  A breakdown of the print showed that basic wages grew 2.1% over the same time period, beating expectations.  Today’s jobs data did little to change the outlook for the future of British interest rates.  OIS is pricing in roughly only a 20% change of a hike this year.  We do not see a rate hike until at least the second half of 2018, perhaps early 2019.

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