FOMC Hawks Save the Dollar, but Pressure Remains

Daily Update - 9th January 2018

Yesterday’s Focus

• EUR Unemployment, Services Sentiment, Consumer confidence, Industrial confidence, Business climate
• CAD BoC Business Outlook Survey
• US FOMC Member William Speech, Consumer Credit Change, FED Reserve Bank of Boston President Rosengren Speech

Yesterday’s Explained

On Monday, German factory orders fell -0.4% m/m in November.The Eurozone Sentix investor confidence rose above expectations to 32.9 in January.The Eurozone business confidence indicator increased to 116.0 in December.The Eurozone retail sales rose 1.5% m/m in November erasing the unexpected decrease of -1.1% m/m in the previous month.

The Bank of Canada Q4 business outlook survey finds expectations for sales activity remaining positive but points to some moderation ahead. Canadian companies plan to expand operations to accommodate sustained demand with investment and employment intentions rising. Companies expect growth of input prices to rise due to gains in commodity prices.

Atlanta Fed president Raphael Bostic said Fed may not need to raise interest rates as many as three times in 2018 because inflation remains weak. Bostic said recent research suggests neutral rate continues to decline, with debate as to whether it has "bottomed out" expecting “two-to-three” rate hikes in 2018. Bostic anticipates “modest” impact of tax overhaul on growth, with few businesses in a recent survey saying they expect to expand investment or hiring as a result.

San Francisco Fed President John Williams painted a benign picture of Fed rate hikes in 2018 adding that the US economy is expected to remain strong.

Today’s Focus

• Trade balance, Current Account, Imports, Exports

Today’s Market

On Tuesday, economic data out of the Eurozone this morning includes November trade and industrial production figures out of Germany, together with unemployment numbers out of the Eurozone.

Following an unexpected fall in German factory orders, the markets will certainly be looking for industrial production and trade figures to impress. Sensitivity to economic data out of Germany will be on the rise this week as Merkel looks to close out coalition talks and deliver another term under the grand coalition.The Eurozone’s unemployment figures will likely play second fiddle to this morning’s data out of Germany, which are forecasted to be EUR positive.

For the Pound, this morning’s retail sales figures would have provided some support and, with no material stats scheduled for release this morning, there’s unlikely to be too much to influence ahead of key data scheduled for release tomorrow.

Across the Pond, economic data out of the U.S is limited to November’s JOLTs job openings that will be of some interest to the markets, following last week’s softer than expected nonfarm payroll figures. Recent upside in the Dollar has come off the back of some hawkish FOMC member commentary, with voting members Mester and Williams talking up the number of rate hikes from the two that the markets have pencilled in.While Williams spoke of 3 hikes, in line with the median projection released by the FOMC in December, the more hawkish Mester talked of a possible 4, which is certainly far more aggressive than many foresee, with inflation where it is today.

At the time of writing, the Dollar Spot Index was down 0.07% to 92.29, with talks of U.S President Trump being interviewed by Special Counsel Robert Mueller something that will also need to be considered.