Analysts at Nomura explained that despite Friday’s weak CPI inflation print, the dollar performed strongly in the first half of the week, aided by above-consensus retail sales numbers and hawkish comments from NY Fed Dudley suggesting that he would support a further hike in 2017 if the data warranted it.
Key Quotes:
"Nonetheless, these gains were reversed in part later in the week by dovish FOMC minutes and continued political turbulence in Washington.
Wednesday’s FOMC minutes showed continued uncertainty on inflation with ‘many participants’ seeing some likelihood inflation could remain below 2% for longer than currently expected, with risks tilted to the downside. Inflation prints between now and the December meeting remain highly important for the FOMC and the market.
There were also discussions on financial conditions, despite having increased rates three times since December, financial conditions have eased in the US. Finally, there was a continued consensus on balance-sheet reduction at September’s FOMC meeting.
Based on the minutes, and our expectations that the August CPI data will not contain another large downward surprise and that financial conditions do not change drastically, our economists’ maintain their call for a December rate hike.
President Trump has faced a challenging week in the White House. Meanwhile, the 29 September deadline Mnuchin has set for the debt ceiling bill to be passed approaches. Our economics and rates teams find that the risks of breaching the debt limit are lower than in 2011 and 2013, but slightly higher than in 2015. FX markets and FX vols tend not to react in the same way that Treasuries have ahead of debt ceiling limit breaches, and historically debt negotiations do not become serious until the closing bell gets much closer.
Tail risk hedges are unlikely to build during the August recess, but if discussions show signs of deadlock in September, then the market may begin to take notice."
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: The hunt for the 0.7000 hurdle
AUD/USD quickly left behind Wednesday’s strong pullback and rose markedly past the 0.6900 barrier on Thursday, boosted by news of fresh stimulus in China as well as renewed weakness in the US Dollar.
EUR/USD refocuses its attention to 1.1200 and above
Rising appetite for the risk-associated assets, the offered stance in the Greenback and Chinese stimulus all contributed to the resurgence of the upside momentum in EUR/USD, which managed to retest the 1.1190 zone on Thursday.
Gold holding at higher ground at around $2,670
Gold breaks to new high of $2,673 on Thursday. Falling interest rates globally, intensifying geopolitical conflicts and heightened Fed easing bets are the main factors.
Bitcoin displays bullish signals amid supportive macroeconomic developments and growing institutional demand
Bitcoin (BTC) trades slightly up, around $64,000 on Thursday, following a rejection from the upper consolidation level of $64,700 the previous day. BTC’s price has been consolidating between $62,000 and $64,700 for the past week.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.