US Dollar Mixed Ahead of PPI, FOMC Statement
The US dollar was mixed against its major trading partners early Tuesday ahead of the release of producer price (PPI) readings for November, with markets unwilling to move too aggressively a day before the Federal Open Market Committee (FOMC) announcement.
Analysts expect a 0.5% gain in overall producer prices and a 0.4% gain in core producer prices, but even if the data did come in softer than that, the outlook for Wednesday’s FOMC meeting will remain the same.
The consumer price report released on Friday showed annual inflation rates that were the strongest in decades, confirming the need for more aggressive monetary policy tightening.
As a result, the FOMC is widely expected to accelerate the tapering of its asset purchase program at this week’s meeting, likely to $30 billion per month starting in January from the previous $15 billion per month.
At this pace, the FOMC could be at zero net purchases by March and could consider rate increases after that if needed.
A quick summary of foreign exchange action heading into Tuesday shows that USD-CAD was steady at 1.2809, in line with the Monday US close, but up from 1.2751 at the same point a day ago.
The Bank of Canada’s new mandate that was announced on Monday will allow it to tolerate higher inflation to pursue maximum employment, bringing it more in line with the Fed.
The policy statement from the Bank of Canada last week was relatively dovish compared with market expectations for substantial tightening over the next year. USD-JPY fell slightly to 113.5765 from 113.5851 at the Monday US close and from 113.6170 a day ago.
Revised Japanese industrial production data for October released earlier Tuesday was modestly stronger than initially reported, but the details were mixed, and October production was still down from the Q3 average and from a year earlier.
The Bank of Japan is expected to maintain its accommodative policy stance at its meeting later this week.
GBP-USD rose to 1.3247 from 1.3212 at the Monday US close but was down from 1.3256 a day earlier. UK labour market data for November beat expectations earlier Tuesday, showing an increase in employment and a decrease in unemployment, though the mix is still less favourable than before the pandemic.
Earnings growth slowed. UK inflation data will be released Wednesday, but even above-expected readings are unlikely to encourage the Bank of England to raise interest rates at its meeting on Thursday as uncertainty around the omicron variant remains elevated.
EUR-USD rose to 1.1314 from 1.1286 at the Monday US close and from 1.1281 a day ago. Eurozone industrial output expanded solidly in October after a decline in September, but the flash IHS Markit PMI survey for December is expected to show a slowdown when it is released on Thursday ahead of the European Central Bank meeting.
The ECB is expected to provide more details on how it will taper its asset purchases, but the emergence of omicron cases will likely push off the start date of reductions. # US Dollar Mixed Ahead of PPI, FOMC Statement
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