US Open Note – Dollar climbs as prices and yields tick higher

Global inflation risks prevail, Canada delivers CPI data

The US economy appears to be recovering well in the last quarter of the year and subsequently, speculation about a fresh Fed Chairman being appointed seems to be fading in the horizon. Yesterday’s surprise surge in US retail sales by 1.7% m/m in October hints that consumption remains at elevated levels. However, these figures are nominal as rising price pressures persist.

The dollar index has touched 96.24, levels last seen in July 2020, but it has currently retracted a tad below the 96.00 mark. Rising yields and upbeat sentiment has managed to keep the greenback buoyant, while gold surprisingly has kept its haven appeal trading at the 1,862/oz level, somewhat acting as an inflation hedge as well.

That said, its likely pressure on the Fed to take a more aggressive approach with tapering will continue towards the end of the year as inflation risks linger.

The USDCHF pair is holding above the 0.9300 handle, eyeing the long-term restrictive trendline pulled from the April 2019 peak of 1.0235. The yen is consolidating around the 114.80 mark but should the dollar retain its strength, a jump above the 115.00 level does not look unlikely.

US building permits in October improved to 1.65 million versus the forecast of 1.63 million however, new housing starts disappointed coming in at 1.52 million, from expectations of 1.58 million.

Sterling resilience beats deteriorating euro

The euro rebounded above the $1.1300 handle after touching a 16-month low of $1.1254. The ECB is unlikely to remove accommodation in December as the bloc continues to lag other economies like the US and the UK, hindered by the scars from the pandemic. Inflation risks also prevail, while in its latest financial stability review, the ECB highlighted dangers from higher debt levels in the corporate and public sectors as well as from more risk-taking and borrowing.

Across the channel, while Northern Ireland issues with the EU continue to fester in the background, the UK delivered stronger headline inflation of 4.2% y/y as opposed to the estimate of 3.9%, while the core component came in at 3.4% compared to September’s 2.9% and expectations of 3.1%. Furthermore, raw material costs, PPI input, came in stronger at 1.4% as well as PPI output at 1.1% m/m.

Moreover, the September house price index yearly figure shot up to 11.8%, beating expectations and the August number of 10.2%. UK inflation is above the 2% target and market expectations of a rate hike in December stand at just below 60% after the BoE failed to raise rates last month. The pound picked up, ticking only slightly up to $1.3467 after the strong CPI and PPI data.

EURGBP fell back below the 0.8400 handle, touching a fresh 20-month low of 0.8383.

Canadian inflation disappoints, dollar strength governs

The loonie pushed higher to C$1.2592 after yearly inflation came in line at 4.7% and the headline monthly figure at 0.7%. The core common number was slightly weaker than expected but unchanged from September’s 1.8% figure. Dollar strength and yesterday comments from BoC Deputy Governor Schembri on concerns around remaining slack in the economy may have aided the move.

WTI oil futures are holding above the $80.00 per barrel mark on growing odds that the US may dip into the Strategic Petroleum Reserves and cooperate with China in a coordinated effort to help ease oil prices.

US Crude oil inventories will follow at 15:30 GMT

Then starting from 16:00 until 21:10 GMT there will be various FOMC Members speaking from Bowman, Daly, Waller, Evans, and Bostic

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