Dollar falls sharply as weak U.S. data dampens Fed's rate hike: Oct 16, 2014

Market Review - 15/10/2014 22:31GMT
 
Dollar falls sharply as weak U.S. data dampens Fe's rate hike

The single currency rallied sharply from intra-day low of 1.2625 to as high as 1.2885 after the release of much weaker-than-expected U.S. retail sales data which dropped by 0.3% versus economists' forecast of a drop of 0.1%. The New York Fed's Empire State general business conditions index plunged to 6.17 in October from September's 27.54, marking the weakest pace of manufacturing activity in New York state since April. Dow Jones index dropped by more than 400 points before closing down 172 points at 16143.

In the Beige Book report of anecdotal information on business activity collected from contacts across the nation, the Federal Reserve said 'the pace of economic growth appeared similar to that observed in its previous report released in early September. The U.S. economy expanded at a "modest to moderate" pace across much of the nation in recent weeks, giving a picture of stable economic growth despite recent signs of weakness; "most districts reported overall growth in consumer spending that ranged from slight to moderate." The Fed said their reports were generally in line with comments gathered in the prior Beige Book. Beige Book showed one exception was in the retail sector, where general merchandise stores in New York said sales had weakened. That appears consistent with data released earlier on Wednesday that showed a decline in retail sales in September. The Fed also noted that a number of districts reported "modest" wage growth, while several saw upward wage pressures in industries like construction and manufacturing.

Despite dollar's brief bounce to 107.49 in European morning on Wednesday, the greenback nose-dived to 105.20 in New York morning after the release of much weaker-than-expected U.S. retail sales data together with the sharp selloff in global stock markets, however, short-covering subsequently lifted the pair to 106.40 and then swung wildly later in the day.

The British pound swung wildly on Wednesday. Despite initial drop to 1.5877 in Asia, short-covering lifted cable and the pair later rallied to as high as 1.6070 due to dollar's broad-based weakness on downbeat U.S. retail sales and then tumbled to fresh 11-month low at 1.5875 before rebounding again.

BOE's Martin Weale said the Bank of England should pay heed to the swift pace at which Britain's unemployment rate is falling as it considers when to start raising interest rates. Weale also said the BoE should not take too much comfort from a sharp fall in British inflation because it had been "significantly depressed" by sterling's appreciation and by falling oil and commodity prices around the world, something the central bank would look into next month. However, he did say that he would continue to take the economic outlook for the euro zone and the global economy into account when he voted on rates.

Thursday will see the release of New Zealand's manufacturing PMI, consumer inflation expectation, eurozone trade balance and CPI, U.S. initial jobless claims, industrial and manufacturing output, NAHB housing market index, Philly Fed business index, Net L-T flows and overall capital flows.