Daily Market Update

Dollar Slips on Weak Inflation; FED this Afternoon

December 13, 2017

The U.S. dollar slipped again overnight after regaining the previous night’s losses during yesterday’s session.

USD

Some analysts have pointed to the result of last night’s special election in Alabama for the slight dollar weakness. Democrat Doug Jones upset Republican Roy Moore to become the next senator from the traditionally deep red state. While the result is likely to have little impact on the pending tax reform bill, it does call in to question whether President Trump will be able to carry out the rest of his agenda in 2018. From the greenback’s perspective, an infrastructure bill would favor the currency.

The dollar is extending its losses in early trading after consumer inflation data slightly missed estimates. The consumer price index showed prices rose 0.4% month over month, in line with expectations. But the core reading showed only 0.1% price increases. The persistent low inflation environment will continue to give the Federal Reserve headaches.

Eyes will now shift to today’s Federal Reserve interest rate announcement. It is all but certain the FOMC will boost rates by 25 basis points this afternoon. But the Fed will also release its “dot plot” for next year, as well as inflation and growth outlooks. Outgoing Fed President Janet Yellen will give her last press conference as Fed Chief at 2:30 p.m.

 

EUR

The Euro has been able to take advantage of a weakening dollar this morning, bouncing off of near three-week lows. Eurozone industrial production rose 0.2% in October, beating expectations of a flat reading. Employment in the Eurozone rose 0.4% in the third quarter and is up 1.7% this year which is the strongest growth rate since 2008. European Central Bank leaders will meet tomorrow but are not expected to change current policy. However, traders will listen carefully to ECB President Mario Draghi’s tone during his press conference for a possible shift in messaging.

 

GBP

The British pound continues to be a volatile currency as Brexit headlines often clash with data releases. The sterling initially found a little support as reports of some progress between Theresa May’s government and members of parliament crossed the wires. However, those gains proved brief following a mixed jobs report. The unemployment rate held at 4.3%, missing expectations of a dip to 4.2%. More people also left the workforce. Wages did pick up to 2.5% but are not keeping pace with inflation (3.1%), meaning U.K. workers are starting to feel a squeeze in their real income.

 

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