The US dollar has now sold off for three days in a row. Last week, we warned that the dollar was looking overbought, and was vulnerable to a pullback. This week, major world currencies including the euro, the pound and the Chinese yuan are strengthening, and the dollar is falling in relative terms. The euro gained yesterday after the ECB's Lautenschlaeger suggested that the time has come to put unconventional tools (i.e. quantitative easing) back in the box. Following China's 'golden week' holidays, the yuan is strengthening against the US dollar. Given the importance of the upcoming 19th Party Congress, the yuan is likely to remain stable for now. There has been limited news headlines from the US given that Monday was a public holiday.
USD/JPY is back below 113, and is currently trading above 112.60 this morning. The euro has been rebounding since last Friday, and is currently trading above 1.1780.
This week’s economic data releases include FOMC minutes on Wednesday, continuing and initial jobless claims on Thursday, and retail sales and Consumer Price Index figures on Friday. Friday’s CPI figures will be watched closely, given rising inflation expectations. While the data will be influenced by the impact from the recent hurricanes, a sustained increase in inflation could suggest that the trend of weakening inflation in rate-of-change terms is coming to an end. As we wrote earlier, this has big implications for inflation-sensitive assets such as crude oil. Last week's non-farm payroll numbers widely missed expectations.