The U.S. dollar jumped to life overnight and gained against nearly all of its major counterparts on hawkish comments from the Fed and easing tensions with North Korea.
The U.S. dollar jumped to life overnight and gained against nearly all of its major counterparts on hawkish comments from the Fed and easing tensions with North Korea. North Korea said it would not launch an attack on the U.S. territory of Guam, allowing global stocks to trend higher and reducing demand for safe-haven assets.
The dollar also found support after Federal Reserve Bank of New York President William Dudley argued that he is in favor of another rate hike in 2017. He also said it “isn’t unreasonable” to expect an announcement of the Fed’s plan to shrink its balance sheet at the conclusion of the Fed’s September meeting.
The greenback is extending its overnight gains in early trading on the back of strong economic data. Advanced retail sales rose 0.6% in July, doubling expectations of a 0.3% reading. The so-called “core” reading, which excludes volatile auto and gas sales, also beat estimates. Consumer spending accounts for over two-thirds of the American economy, so today’s print obviously helps the greenback. Empire state manufacturing also smashed economists forecast coming in at 25.2 versus a previous reading of 9.8.
The safe-haven Japanese yen was again the biggest loser overnight as investors sold safe-haven assets in favor of global equities. Geopolitical risk between the United States and North Korea has subsided after a number of ranking members of the Administration looked to tamp down the President’s “fire and fury” comments. The North Koreans also said that they would not attack Guam but would continue to watch the “foolish and stupid yankees.”
The British pound plunged nearly a full percent against the U.S. dollar overnight a report showed inflation was short of expectations. U.K. inflation registered at 2.6% in July, unchanged from the month prior. However, the print failed to meet expectations of 2.7%. The lower inflation data will lower expectation of a Bank of England rate hike sometime late next year or early 2019. Nevertheless, BoE Governor Mark Carney is trying to make the argument that markets are underpricing rate hikes. With Brexit uncertainty still swirling, we do not expect the Bank to make any moves in 2018.