Dollar Winning Streak Continues

Weekly Report - 16/10/2016

Haven Assets Under Strain Amid Rising December Interest Rate Hike Pressure


Although Federal Reserve Chairwoman Janet Yellen was slightly more dovish in her delivery of Friday’s address, there is a growing likelihood of at least one rate hike before the end of the year after a number of hawkish comments from other key Fed officials.  With data on the way in the coming week, more support for policy normalization may arrive from upcoming CPI data.

Last Week

China was in the spotlight last week after the unfolding reaction to the prior week’s payroll figures.  The outlook was deemed a little shakier after the release of trade data which showed a deeper than anticipated contraction in exports along with the smallest trade balance in six-months.  While inflation data reported later in the week showed a rebound in both consumer prices and the first positive producer price print in nearly 4-years, concerns about the outlook remain, with the Yuan falling to its lowest levels against the US dollar in 6-years.  However, despite the unevenness of Chinese economic activity, the US dollar continued to gain on the back of rising rate hike speculation.  Even though mixed data has been weighing on the outlook, the probability of a December adjustment was enough to drive the US Dollar Index to its highest levels since March, putting renewed pressure on gold prices which briefly fell below $1250.00 per troy ounce before rebounding.  The FOMC meeting minutes prominently displayed the increasingly hawkish stance of policymakers, fueling additional upside in the dollar.  Meanwhile, the Pound fell to new multi-decade lows versus the dollar while EURUSD slid below 1.1000.


The Week Ahead

Inflation will be in focus during the sessions ahead with consumer price figures due from across the globe, kicking off with the Euro Area on Monday.  While monthly CPI is expected to experience gains, annualized headline CPI is expected to remain on hold at 0.40%.  UK CPI, set to be reported on Tuesday is forecast to show a major uptick on the back of a weaker Pound while US inflation due the same session is also estimated to show a sustained trend higher with headline consumer inflation set to rise to 1.50% on an annualized basis.  Aside from inflation are interest rate decisions from the European Central Bank and Bank of England.  Although monetary policy adjustments are not anticipated from either institution, the statements and remarks that follow will be closely monitored for signals of further accommodation or possible tapering in the case of the ECB.  The Bank of Canada is also set to decide on rates, with the key interest rate forecast to remain on hold at 0.50%.  Finally, China is set to report on third quarter GDP, with quarterly growth forecast to remain stable at 1.80% while the annualized pace matches prints at 6.70%.


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