The dollar was up mildly yesterday, following good economic data including lower-than-expected initial jobless claims and slightly higher-than-expected year-over-over producer prices. The US economy continues to perform well in 2017. This morning the US dollar is back to selling off, given rising odds that Powell will be the next Fed Chair and concerns regarding Trump's ability to get tax reforms passed through Congress. In political news, Trump signed an executive order last night, allowing trade associations and other groups to offer their own health plans. These plans would be exempt from Obamacare's rules, and can be sold nationally. While the impact for most Americans is likely to be limited, selling health plans across state lines has been a key issue for Senator Paul Rand. By appeasing Paul, Trump may be looking to build support for his upcoming tax bill.
USD/JPY sold off yesterday and is down again this morning. The exchange rate is currently just below 112.0. EUR/USD is up slightly this morning after selling off yesterday, with the pair currently above 1.1840. The pound is also doing well, with GBP/USD currently above 1.3270.
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. Wednesday's FOMC minutes suggested that the Fed is concerned that low inflation is not temporary, but is mostly in favor of a rate hike in December anyway. Thursday's initial jobless claims (243K vs. 251K expected) beat expectations, as did PPI figures (2.6% vs. 2.5% expected). 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. We published our broader thoughts on the upcoming FOMC minutes and CPI numbers in a recent article.
After falling sharply in the second week of October, we are downgrading the US dollar to neutral. Thanks to rising doubts regarding Trump's ability to get tax reforms through Congress and strong performance in the euro and the Chinese yuan, the US dollar is broadly weakening. While the currency remains in oversold conditions in the medium-term, the dollar bull market that was intact since early September is now taking a breather.