USD: Moderately hawkish remarks by Powell – ING
|The US Dollar (USD) is testing the limit of stretched positioning, but macro developments have so far failed to offer any real catalyst for a substantial unwinding of the greenback’s longs. The set of inflation figures for October have kept markets somewhat reticent to fully price in a December cut from the Federal Reserve, as both CPI and PPI’s core measures have printed at 0.3% month-on-month. That is simply too hot for the Fed to turn the dial to a more dovish narrative, ING’s FX analyst Francesco Pesole notes.
USD is due a correction
“And indeed, the remarks by Fed Chair Jerome Powell in Dallas yesterday seemed to endorse markets’ cautious pricing on Fed easing, giving some support to the dollar towards the end of the New York session. Powell seemed to put greater emphasis on the strength of the economy and how that allows the central bank to approach the upcoming policy decisions “carefully”. Market expectations for a cut in December declined by around 5bp after his comments and are now at 15bp.”
“Today, there is another chance for a dollar positioning-led correction as retail sales for October are published. Consensus is for a marginal slowdown across all retail sales indices compared to September, while still remaining in positive MoM territory. It probably won’t take much to trigger a negative dollar reaction, but the recent momentum has been rather strong in US data.”
“Our short-term view remains that the USD is due a correction, and caution is warranted when chasing the current rally much further. However, when we look ahead and consider incoming US president Donald Trump’s policy mix, we remain of the view that markets will favour a structurally strong USD.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.