Mid-Day Report: Dollar Weakens as Consolidation Continues, FOMC Minutes Next
Dollar is sharply lower against European majors in early US session as consolidation continues. Technically speaking, as discussed in our technical outlook reports, more upside is still expected in EUR/USD and GBP/USD. Meanwhile, USD/CHF retreats sharply after edging higher to 1.2082 earlier today. Dollar index’s dip below 4 hours 55 EMA argues that some more pull back should be seen before resuming recent rally. Elsewhere, Crude oil, rides on dollar’s retreat and rebounds strongly from intraday low of 53.66 to above 55.6. Focus will now turn to FOMC minutes for inspirations on further volatility. Though, ,markets are pricing in 90% chance of another 50bps cut from Fed on Dec 16 and the minutes will likely have little impact to this view based on current economic and inflation outlook.
US CPI plunged 1% mom in Oct, worse than expectation of -0.38, and was the largest monthly decline since records began in 1947. Annual rate slowed sharply from 4.9% to 3.7% versus expectation of 4.0%. Core CPI also dropped -0.1% mom in Oct, first monthly decline since 1982. Annual rate slowed from 2.4% to 2.2%. New residential construction data showed housing market recession is still in progress. Housing starts fell 4.5% to 791k annual rate in Oct, lowest since records began in 1959. Building permits dropped -12% to 708k, lowest since at least 1960.
BoE MPC minutes revealed that the board members voted unanimously by 9-0 to cut the Bank Rate by 150bps on Nov 6, to the lowest level since 1955 at 3.00%. The minutes noted that upside risks to inflation came down recently but downside risks to growth increased. The committee judged that “immediate reduction” of 150bps was “necessary to meet the 2% inflation target in medium term even though a bigger reduction of 200bps was considered. The committee would like to wait for the details of the fiscal stimulus package and effect of financial institutions rescue plan before acting further. Sterling strengthens mildly after the minutes by remains bounded in tight range. Also released today, CBI manufacturing orders index improved mildly from -39 to -38 in Nov.
By ActionForex
