FOMC Minutes Keep USD Rally On Track

The US Dollar is trading higher into the end of the week following yesterday’s data events.

Firstly, July retail sales were seen coming in flat on the headline reading and above estimates on the core reading, alleviating fears of a major downside surprise. Following that, we had the July FOMC minutes.

While the minutes offered little in the way of major revelation, and created little volatility, they did enough to keep USD supported. Notably, the Fed was seen acknowledging the positives of recent USD strength in keeping import inflation down. Looking ahead, the bank discussed the risks of tightening more than necessary, though focused on the need to continue tightening until inflation is back at its 2% target, diluting expectations for a so- called “Fed pivot”.

Key Factors for Today

- FOMC minutes broadly USD-positive
- Fed seen praising some aspects of USD strength, committed to tightening until inflation at target
- Stocks fall as USD rally continues, weaker US earnings from Target
- USD leads in FX, GBP & AUD fall
- UK inflation hits 10.1% in July,
- Eurozone GDP undershoots forecasts raising recession fears

Coming Up

- USD US Philly Fed manufacturing
- USD US Existing home sales
- NZD New Zealand Trade balance

Risk Assets Sink as USD Rally Continues

Following a decent start to the week, investor appetite was seen crumbling across the last 24 hours. Stock markets across the globe have turned lower into the back-end of the week as the USD rally begins to gather pace again. Decent US retail sales figures, along with a broadly optimistic set of FOMC minutes (little to suggest Fed is highly concerned over economy) has seen risk markets turning lower.

DAX Falls on Eurozone Data Miss

In Europe, the DAX sank more than 2% yesterday following weaker-than-expected eurozone GDP figures, reinforcing fears of a slowdown there. The ASX was seen tumbling overnight after weaker-than-expected earnings from CLS. Weaker-than-expected Australian wage-growth data has also put fresh focus on consumer spending ability, adding further pressure for stocks.

The FTSE is lower today also following a reversal from earlier highs on the week. With UK inflation hitting fresh 40-year highs in July, BOE rate hike expectations have jumped again with traders eyeing the need for further action from the bank in September.

Targets Tarnishes US Earnings Streak

In the US, a set of weaker-than-expected Q2 earnings from Target diluted the better sentiment we’d seen following Walmart and Home Depot earnings prior. The company saw profits sinking 90% on the year, adding to the bearishness in markets as the USD rally continued.

USD Leads in FX, GBP & AUD Fall

In FX, USD has been the best performer again across the European open on Thursday. GBP and AUD have been the weaker currencies. AUD is falling amidst the reversal lower in risk sentiment, while GBP appears to be reeling from the latest inflation data yesterday which showed CPI hitting 10.1% in July, raising fears over the negative impact on the economy through the second half of the year. Data wise today, US Philly Fed manufacturing will be the main focus.