While the US dollar spiked to 10-day highs yesterday, the currency ended the day down. The dollar began rallying after Senator John McCain supported the tax bill. Previously, McCain had not publicly backed the bill given his desires for increased military spending. Later in the day, the dollar fell after deficit hawks sought to pass an amendment to the tax bill. According to a Reuters report, Republican senators including Bob Parker are opposed to substantially increasing the size of America's deficit. As this delays the vote, the US dollar fell as a result. This morning, the USD continues to sell off. In other news, Core PCE figures came within expectations (1.4%). Core PCE remains below the Federal Reserve's inflation target of 2%. Our short-term outlook on the dollar remains bearish.
USD/JPY is flat and currently trading just above 112.50. EUR/USD is up today and currently just above 1.1930. The pound is flat, with GBP/USD currently above 1.3520.
This week, we'll see economic data relating to housing, inflation and economic survey figures. New Home Sales figures rose to 10-year highs on Monday (0.685m vs 0.625m expected). Case-Shiller Home Prices beat expectations (6.2% vs. 6.1% expected) while consumer confidence rose to multi-year highs (129.5 vs. 124 expected). Q3 GDP beat expectations (3.3% vs. 3.2% expected) while Core Personal Expenditures met expectations (1.5% quarter-on-quarter). Pending Home Sales were higher than the previous print (1.2% vs. -5.4%). Core PCE met expectations (1.4%), while initial jobless claims (238k vs. 240k expected) and the Chicago PMI (63.9 vs. 63 expected) beat expectations. Later today, we'll see ISM manufacturing PMI and prices paid. We'll also see Markit manufacturing PMIs. Last week, FOMC minutes worsened the inflation outlook.
As the dollar rebounds from its lows in early September, we are upgrading the US dollar to neutral. The currency is neither overbought nor oversold today, and trades within a normal range. This is based on technical indicators when looking at a weekly chart.