Fed’s Yellen said one time factors are suppressing US inflation
The US dollar is mixed against the majors on Thursday. The greenback has bounced back against the EUR, JPY and CHF but has depreciated against commodity currencies ( NZD, AUD and CAD) and the GBP. With little action on the economic calendar traders focused on Fed Chair Janet Yellen’s second day of testimonies. This time the Fed Chair was addressing the Senate Banking Committee, but stuck to the assessment that the economy is on the mend. Focusing on US employment to prove her point and once again dismissing low inflation as the result of temporary factors. Once those one time issues pass low unemployment will push inflation near the 2 percent target.
The release of the Consumer Price Index (CPI) by the Bureau of Labor Statistics on Friday, July 14 at 8:30 am EDT will be the main release with traders hoping to gauge how “temporary” are current inflation issues. Monthly inflation is expected to have gained 0.1 percent and the core reading, excluding food and energy is anticipated to have risen by 0.2 percent. The US Census Bureau will also publish retail sales with similar subdued gains expected as the paradox of confident consumers and lack of spending still plagues the US economy. Appropriately the University of Michigan will release the flash consumer sentiment at 10:00 am with a forecast of the reading matching the revised 95.1, pointing to a high confidence from surveyed consumers.
Political risk and lack of data gave investors little guidance on Thursday. Friday’s data points will help the market price inflation expectations and the state of consumer spending. Although Fed Chair Janet Yellen stuck to a hawkish rhetoric on rates and balance sheet reduction there were some dovish undertones during her testimony as she doesn’t believe the US can reach the 3 percent growth promised by the Trump administration.
The EUR/USD lost 0.148 percent in the last 24 hours. The single currency is trading at 1.1401 after Chair Yellen’s testimony in Washington. There was little new from the Head of the Federal reserve that hasn’t been said before via a statement or comments from other Federal Open Market Committee (FOMC) members. The central bank will not announce a set schedule for rate hikes as it all depends on the incoming data. Balance sheet reduction could start this year with a gradual cap on reinvesting until holdings are normalized.
The euro has risen this year on the back of rising political stability in the Euro zone after the French elections ended with the victory of Emmanuel Macron while at the same time the Russian probe has rocked the White House. The Trump administration has not been able to gain momentum and is still negotiating the healthcare reform policy that could hold up pro-growth policies from being introduced this year.
The USD/CAD lost 0.027 on Thursday. The currency pair is trading at 1.2729 while caught in a tight range after the Bank of Canada (BoC) hiked the benchmark rate on Wednesday. The 25 basis point is the follow up to hawkish comments from senior policy makers at the central bank. The BoC cut rates twice in 2015 to proactively prepare the economy to endure the fall in oil prices. Now those cuts are supposed to have done their job and with oil prices stable Governor Stephen Poloz is now expected to raise rates once more before the end of the year.
The price of oil rose 1.162 percent in the last 24 hours. The West Texas Intermediate is trading at $45.97 following a fourth session of gains. The large drawdown of US crude inventories boosted oil prices while at the same times there were signs of growing demand around the world. Crude stockpiles fell 7.6 million barrels, with the previous report also showing a 6.3 million barrel drop.
The Organization of the Petroleum Exporting Countries (OPEC) deal with other major producers to limit production has been the biggest factor keeping prices stable. There are concerns that compliance with the deal that was near 100 percent this year, has fallen to 78 percent as some producers like Saudi Arabia have seasonal rises this time of year.
Market events to watch this week:
Friday, July 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m