The US dollar rose yesterday, particularly against the euro and the British pound. Stronger than expected PPI figures helped inflation expectations, strengthening the dollar. In the latter part of the day, the dollar began selling off after Republicans lost their Senate seat in Alabama. This morning, the currency continues to weaken. The reduced Senate majority makes it harder for Republicans to get tax cuts through Congress. Later today, we'll see CPI figures and the Fed's statement. Thanks to strong crude oil prices, CPI numbers are expected to be strong. With regards to the Fed meeting, there is a good chance that Yellen communicates a hawkish outlook as this is her last meeting in her role as Fed Chair. Our short-term and medium-term outlook on the dollar remain neutral.
USD/JPY is down and currently trading just above 113.40. EUR/USD is flat today and currently just above 1.1740. The pound is up slightly, with GBP/USD currently above 1.3320.
This is a big week for the US dollar in economic data and events. PPI (producer prices) was stronger than expected (3.1% vs. 2.9% expected). Today is the key day with both November CPI and the Fed’s interest rate decision and statement. As the Fed is widely expected to raise rates, markets will be focusing on the Fed’s outlook for inflation and rate hikes in 2018. On Thursday we’ll see retail sales, as well as Markit PMIs. On Friday we’ll see industrial production and capacity utilization. Last week, nonfarm payrolls beat expectations while wage growth disappointed.
As the dollar strengthens on higher inflation figures and rate hike hopes, we are upgrading the dollar to bullish. Note that the currency is trading within normal conditions in the short-term time frame. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
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.