16/08/2017 - Dollar Gains Momentum After Strong Retail Figures

USD

The Dollar gained momentum yesterday following the release of stronger than expected retail sales figures, which has brightened the outlook for US economic growth in the third quarter. The Commerce Department yesterday revealed that retail sales rose 0.6% in July. Economists had initially forecast a gain of only 0.4%. 

USD also received support from easing tensions between the US and North Korea after Kim Jong-Un yesterday revealed that he would delay plans to fire a missile near the U.S. Pacific territory of Guam. The North Korean leader said that although he will be holding off his decision, he would still be keeping a close watch on the actions of the US military.

The rally in the dollar followed on from Monday after one of the Federal Reserve’s most influential members, William Dudley revealed that he favoured another hike in US interest rates this year if the economy grew in line with economists’ expectations.

In an interview with Associated Press, Dudley also indicated that the Fed could begin unwinding its $4.2 trillion balance sheet as soon as September. He also praised the Trump administration for not “politicising” the Fed’s decisions unlike past Congress members. 

GBP

Sterling extended losses yesterday after the release of data showing a slight slowdown in Britain’s annual inflation rate, relieving pressure on the Bank of England to hike UK interest rates.

The Office for National Statistics yesterday revealed that consumer prices rose 2.6% compared with a year earlier. Analysts had originally expected the annual CPI figure to rise to 2.7%. Although the prices of volatile components such as food and clothing were higher than this time last year, it was falling oil prices that dragged down the overall figure. However the retail price index (RPI), which is the level used by the government to set rail fair prices increased to 3.6%, up from 3.5% in June.

With the Bank of England expecting inflation to peak at 3% in October, many investors believe a rise in UK interest rates is still on the horizon for the remainder of this year although the uncertainty surrounding Brexit has supported the Governor Mark Carney’s case for keeping rates on hold.

Key Announcements

09:30 – GBP - Average Earnings Index 3m/y; Forecast to remain unchanged at 1.8% 

15:30 - USD - Crude Oil Inventories

19:00 - USD - FOMC Meeting Minutes