Daily Market Update

Strong Retail Sales Unable to Spark Dollar Strength

December 14, 2017

The U.S. dollar has been unable to recoup losses suffered yesterday afternoon following the Federal Reserve’s rate decision.

USD

As expected, the central bank raised interest rates a quarter of a percentage point. However, the Fed kept its “dot plot” unchanged and indicated that it expects three additional rate hikes in 2018. Some analysts expected that the Fed might take a bullish turn and signal that four rate hikes could be expected next year as the economy continues to grow. The disappointment for those few caused modest U.S. dollar selling across the board.

Yesterday’s move highlights a potential threat to the U.S. dollar in 2018. If the economy unexpectedly slows or inflation stagnates further causing the Fed to only raise rates once or twice next year, the greenback would suffer.

This morning’s U.S. economic docket contains more positive news for the American economy. U.S. retail sales rose more than forecast in November, highlighting what is hopefully a profitable holiday season. Advanced Sales rose 0.8%, beating expectations of a 0.3% advance. October’s print was also upwardly revised. The so-called “core” reading also doubled expectations. Despite the strong data, the greenback has so far been unable to take advantage.

A number of major central banks are releasing monetary policy decisions today so that will remain the focus of today’s session. The U.S. dollar lost the most against the Norwegian krone after the Norwegian central bank indicated that they could exit their stimulus package earlier than initially anticipated.

 

EUR

The Euro ticked higher on general dollar weakness overnight and has remained on the front foot after the European Central Bank decision. The ECB kept interest rates on hold and continued its pledge to wind down its quantitative easing program. At the time of writing, European Central Bank President Mario Draghi is giving a press conference which could spark some volatility. Traders are looking for clues as to when the central bank may start tapering its stimulus program. We will also look for what the central bank considers to be potential road blocks to ending the stimulus.

Positive economic releases also gave the common currency life. Eurozone PMI data suggests that the economic bloc is gaining momentum. A composite Purchasing Managers Index rose 58.0, beating expectations. A breakdown of the report showed that German services and manufacturing measures all bettered expectations this month.

 

AUD

The Australian dollar rose half a percent and touched its strongest level in a month against the U.S. dollar on the back of strong jobs data. Australian employment rose 61K in the month of November, smashing estimates of a 19K gain. Most importantly, two-thirds of the jobs created were full-time jobs. The unemployment rate held at 5.4%.

The strong data has caused swap traders to bring forward the timing of a likely interest rate increase by the Reserve bank of Australia to August 2017 from November.

 

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