This past week turned out to be a good week for the U.S. dollar as the greenback was steady or stronger against most of the major currencies. While this move came as a surprise to many investors after disappointing U.S. data it is important to realize that the largest gain, which was in USD/JPY
was only 1%. Although the service sector expanded at its slowest pace in 6 years, Treasury yields rebounded strongly, providing the catalyst for the dollar's recovery. According to the Federal Reserve's Beige Book report, several districts reported modest price gains and most districts reported a "modest" or "moderate" growth pace. They also felt that despite weak job growth in August, labor market conditions remain tight in most districts and wage pressures increased further.On Friday FOMC voter Rosengren confirmed that the economy is performing quite well with the labor market at or close to estimates of full employment. He sees inflation
slowly returning to their 2% goal and believes there are risks from waiting too long to tighten. Yet the one-way dollar move was stifled by FOMC voter Tarullo who said he is in the show me camp which means he wants to see improvements in data before supporting a rate hike especially since the ISMs "suggests some grounds for questioning." With that in mind he also feels that consumer spending has held up well and "we have an opportunity to continue to get job gains." Fed President (non-voter) Kaplan believes that the case for tightening has strengthened in last few months and agrees with Rosengren that there's a cost to rates at this low level. The main takeaway from all of these comments is that despite slower job growth and weaker manufacturing and service sector activity, U.S. policymakers still believe rates should rise and this consistent message has not been lost on investors..
While European Central Bank
Governor Mario Draghi expressed more confidence about the outlook for the Eurozone economy, using the word resilience on numerous occasions, their lowered growth forecasts and the announcement of Eurosystem committees to further evaluate stimulus options resonated harder with investors. Eurozone data was disappointing with service sector activity slowing, industrial production plunging and the trade surplus falling. Looking ahead, we have the German ZEW survey, Eurozone trade balance and consumer price reports scheduled for release but none of these releases are major market movers for the euro
...September, 21: FED DECISION!!
- SUPPORT: 1.09
- RESISTANCE: 1.18