U.S Dollar Rebounds as Market Recovers from Weak CPI
The United States (U.S) dollar bounced higher early Thursday, as markets have recovered from the weak consumers’ price index (CPI) reading on Tuesday and are seeing both sides to President Biden’s proposed stimulus plan-the benefits and not just the costs.
The DXY hit its highest level since Monday, rising to 92.71, reflecting gains against the euro and pound, partially offset by flatter readings versus the yen and the Canadian dollar.
The exuberance may be short-lived, however. The highlight of Thursday’s busy data schedule is August retail sales, which are expected to decline amid pressure from falling auto sales, rising COVID cases, and the continued unwind from stimulus-led spending earlier in the year.
In addition, weekly initial jobless claims and natural gas stocks, the Philadelphia Fed’s regional manufacturing index for September and July’s business inventories will also be released.
A quick summary of foreign exchange action heading into Thursday shows that GBP-USD has reversed nearly half of Wednesday’s gains, falling to 1.3834 from 1.3855. Recent UK data has been stronger positive, providing some evidence for Bank of England hawks to use in their policy discussions.
However, the upcoming tightening of fiscal measures reduced the need for a near-term monetary policy tightening. EUR-USD has moved back toward Monday’s three-week low of 1.1769, further below Tuesday’s high of 1.1856.
The balance between more US fiscal stimulus and higher taxes has the dollar moving around a lot this week, drawing attention away from next week’s Federal Open Market Committee briefly. Expect that focus to return shortly, especially if Thursday morning’s retail sales data are weaker than expected after softer readings on inflation and employment for August.
USD-CAD has recovered to 1.2635 after slipping to a two-day low of 1.2614 earlier on US dollar improvement as a more fiscal stimulus appears likely. Steadier oil prices should allow the pair to float higher, but the upward movement will be capped by uncertainty until after the FOMC meeting next week.
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USD-JPY remains on the low side of 109.39 after falling to a one-month low of 109.11 on Wednesday. The pair has been trading around that 110.00 marks for several months as both currencies are seen as safety investments at times of uncertainty, including the recent increase in COVID-19 cases.
U.S Dollar Rebounds as Market Recovers from Weak CPI
