The US dollar’s upside momentum eased yesterday in North America, and follow-through selling was seen in Asia and the European morning. The dollar is lower against nearly all the major and emerging market currencies. The yen is the chief exception, and only barely, as the greenback straddles the JPY104 area.
Last week’s US retail sales and yesterday’s industrial output figures are disappointed. What looked to be such a promising quarter in terms of growth appears to have fizzled, and economists are no longer confident that the three-quarter streak of sub-2% GDP prints will be snapped.
It is tempting to attribute this disappointment to the dollar’s pullback, but such logic needs a middle term, and that is changed expectations of Fed policy. That is the missing link, so far.Net-net, and with little volatility, the December Fed funds futures contract is unchanged since October 4, and implies a slightly higher chance of a hike than at the end of September.Still, US yields have softened somewhat. The two-year note yield is seven basis points off last week’s high. The 10-year yield is five basis points below yesterday’s four-month high.
Sterling was posting corrective upticks before news that prices rose more than expected in September. Sterling made a marginal new high near $1.2275, but progress quickly stalled. Comments from the UK government attorney (Eadie) that seemed to recognize parliament’s right to ratify the Brexit Treaty was understood by the market as making a hard exit marginally less gave a fresh boost to sterling that made new highs on near midday in London.
Headline CPI rose 0.2% on the month for a 1.0% year-over-year pace. This was slightly more than expected and compares with a 0.6% pace in August. The core rate rose to 1.5% from 1.3%, which is also a little more than expected.
