Daily Market Update

U.S. Dollar in mixed direction as data flows

January 14, 2022

The U.S Dollar improved against some petro-currencies such as NOK and CAD as well as commodity-based currencies like SEK, AUD, and NZD. 

Overview

Other majors were flat after gaining on the dollar for the past four days, knocking it down to its weakest overall point since November. Producer Price Index figures from yesterday are being interpreted in a way that puts down the prices of riskier assets and can affect supplies. PPI in December advanced just 0.2%, the slowest pace in 13 months, which could mean that inflationary growth is not as much a threat as economists and investors bet it can be.If indeed there is a slowdown and prices are not too likely to increase anywhere near the way they did last year, the Fed will not need to raise interest rates. More importantly, if things can slow down on the economic growth front, why should any other central bank consider several hikes themselves?Today’s release of Retail Sales for December gives further credit to the belief that the economy could in fact cool off and that the accommodative environment is worth maintaining. While a month-to-month contraction was expected, it ended up being way more negative than estimated. The forecast for Retail was (-0.1), but it came out at (-2.3%). We shall see how these data points shape the plans laid out by the Fed and if the buck has more room for losses.

 

What to Watch Today…

  • No major economic events are scheduled for today

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EUR

The Euro has kept its gains, for now, after a week that saw the deflation of the buck as data did not seem to match the intentions of the Fed. More importantly, this week has seen some officials raise their voices about the European Central Bank’s need to consider controlling high inflation. In particular, energy prices on the other side of the Atlantic have made it very difficult for companies to do well and political friction has complicated the effectiveness of natural gas and oil from other nations. ECB member Luis De Guindos echoed the sentiment of others in saying that the inflation being experienced may not be transitory.

 

GBP

Sterling could easily resume its advancement against the dollar if markets welcome the very positive data presented this morning. A measure of monthly Gross Domestic Product improved by 0.9%, more than double the expected 0.4% for November. It also exceeded the 3-month GDP gauge 1.1% vs. 0.8%. Industrial Production for the month also sky-rocketed with 1.1% over 0.2%. Construction Output was also impressed with 3.5% gain over the 0.6% expected. We shall see if this pushes GBP into higher levels than its best since the end of October.

 

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