While the dollar rose against many currencies yesterday (including the yen), it fell sharply against the euro. This morning, the dollar is currently flat against most major currencies. While the House of Representatives passed the tax bill in a vote yesterday, another vote will be required due to procedural issues. At this point, the Republican tax bill is almost certain to become law in the near future. Despite tax-cut related optimism, gains in the dollar have been limited. This is even true for currency pairs that are most sensitive to inflation expectations such as USD/JPY and USD/CHF. In other news, US economic data remains very strong. New build permits were higher than forecast while the current account deficit was smaller than consensus estimates. Most forward-looking indicators continue to suggest a healthy pace of US GDP growth. Our medium-term outlook on the US dollar remains neutral.
USD/JPY is up today and currently trading just above 112.90. EUR/USD is down slightly and currently just above 1.1820. The pound is flat, with GBP/USD currently above 1.3370.
This is a reasonably light week for the US dollar in terms of economic data and events. New building permits (1.3m vs. 1.27m expected) and housing starts (1.3m vs. 1.27m expected) were better than expected. The current account deficit was smaller than expected (-100.6b vs. -116.8b expected). Later today, we’ll see existing home sales. Thursday is the most important day. We’ll see Q3 Core PCE, GDP growth, initial jobless claims and the Philly Fed Manufacturing Survey. On Friday we’ll see November Core PCE, durable goods, and new home sales. Last week, Core CPI missed expectations and the Fed signaled a continuation of the status quo.
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.