Daily Market Update

U.S. Dollar Sinks as CPI Pace of Growth Slower than Predicted

October 13, 2017

The U.S. Dollar is worsening this morning after the release of underwhelming inflationary growth data that failed to meet expectations. The hit to the currency was of about half a percent immediately and is not subsiding yet.

USD

The U.S. Dollar is worsening this morning after the release of underwhelming inflationary growth data that failed to meet expectations. The hit to the currency was of about half a percent immediately and is not subsiding yet. Consumer Price Index figures expanded 0.5% for the month, slightly under the estimated 0.6%, which also lowered the yearly average from 2.3% to 2.2%.

Retail Sales came out as well, but the numbers were mixed. Excluding auto sales, the month-over-month reading climbed 1.0%, just above the 0.9% expected, while prior readings were revised upward. The bleeding continues, however, as political issues also weigh on the greenback this morning with renewed concerns over health care overhaul and tax reform talks.

 

EUR

The Euro climbed after the news regarding U.S. inflation, but it was initially declining after a report claimed that the European Central Bank may extend its Quantitative Easing purchases for another nine months. Subsequently, the Euro fell overnight as the bank is expected to start tapering once this year comes to an end. The accommodative environment in recent years has helped the economic recovery and there seems to be enough members who opine that eliminating loose measures too quickly could negatively impact development across the Euro-zone.

Politically, the currency could see some downside risks going into next week as Austrian general elections will be held over the weekend. As it is happening in Germany, Austria is likely to face an incoming wave of anti-establishment, anti-Euro, and far-right members into their legislative chamber. Although Austria is not the biggest economy, a move to the right in its politics could certainly aid in derailing further integration efforts in the European Union. The shared currency is up half a percent since the start of October, when there was a short-lived dollar rally.

 

GBP

Sterling swung wildly in the past 48 hours after mixed signals about Brexit negotiations. Yesterday morning, it had been reported that EU chief Brexit negotiator Michel Barnier declared a “deadlock” on the divorce proceedings. The news certainly inflicted pain on the Pound, as expected, considering the infighting among Conservative Tories in the United Kingdom over the future of making any deal or none at all.

Regardless, the evening concluded with reports that Barnier was ready and willing to offer the British a 2-year transition period if indeed they continued with their financial obligations to the EU. It is likely that this will be the normal trend for Sterling as we finish the year: messages of extending an olive branch here and there that help the currency while economic worries manifest themselves slowly sinking any gains. It’ll be a roller-coaster ride for sure.

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