U.S. Dollar Outlook For The Week Of October 21, 2016
A string of positive economic data helped the U.S. dollar regain some ground on Friday as investors up their bets that the Federal Reserve will raise rates as early as December.
The U.S. dollar index closed the week up 1.4%, ending the day on Friday at 0.56%. The euro and yen were both weaker against the greenback with EUR/USD at 1.0971 and USD/JPY at 104.15. Sterling was down 0.55% at 1.2186 at the close of the week.
The Commerce Department reported on Friday that retail sales were up 0.6% in September after falling 0.2% the previous month. Another report showed that U.S. producer prices were up broadly in September.
The upbeat economic data underpins the view that the U.S. economy is now strong enough to support withstand another rate hike.
Earlier in the week, the minutes from the Fed’s September meeting were released, which showed that several voting committee members felt rates should be raised “relatively soon” in order to continue supporting economic growth.
In December 2015, the Fed raised rates for the first time in nearly a decade. While the central bank had outlined a number of additional increases throughout the year, it has kept rates on hold amid concerns of slow inflation. Fed officials have hinted at a potential rate hike before the end of the year.
The Federal Reserve’s next monetary policy meeting will take place in November, but it is highly unusual for the central bank to raise rates ahead of a presidential election.
Investors are currently pricing in on a 64% chance of a rate increase in December. Expectations of higher rates typically boosts sentiment on the dollar, making the currency more attractive to yield-seeking investors.
Looking ahead this week, investors will be focusing on a string of data that will likely impact sentiment on the dollar.
On Tuesday, Phillip Lowe, Governor of the Reserve Bank of Australia will speak in Sydney, and the RBA will release the minutes from is most recent monetary policy meeting. The data will give investors insight into the central bank’s outlook on their policy options and the strength of the economy. New Zealand, the U.S. and the U.K. will all release inflation data on Tuesday as well.
On Wednesday, China will release its third-quarter GDP data. Economists are projecting growth to ease again, which may send market players to safe havens, like the Japanese yen. The U.S. will release housing data, while the U.K. will release its monthly employment report. The Bank of Canada will conclude its meeting and announce its benchmark interest rate.
On Thursday, the European Central Bank will host its post-policy meeting press conference. Market players are still speculating whether the central bank will expand its stimulus program as growth and inflation remain sluggish. The U.K. will report on its retail sales, while Australia will release its jobs report. The U.S. will release reports on jobless claims, manufacturing activity in Philadelphia and existing home sales.
On Friday, the U.K. will release data on borrowing in the public sector. Canada's report on inflation and retail sales will be released on Friday, too.