Yesterday was not a very good day for the Dollar. In spite of the generally positive tone of FED’s protocol, some wordings pointed to a lack of consensus about the prolonged soft inflation, as well as the fairness of prices in financial markets. It is possible that such rhetoric is just a warning, since the real problem of asset valuation does not look so serious, given the huge supply of liquidity to the economy by the FED and interest rates around zero. Now, when the policy normalization cycle has begun and Fed promises not less than three rate hikes in next year, it is important that stock market buoyancy goes in stride with strong economic sentiments. Recalling one of the main causes of Great Depression – a collapse in the stock market, the FED will make it best to not create a fuss about it.
Recall that on Tuesday Janet Yellen surprised the market participants with a statement that although she is confident that inflation will “shoot up” in the end, its behavior in near future looks unclear.
The second unpleasant moment for the dollar was ordered for durable goods. The indicator fell by 1.2% in spite of 0.3% increase forecast, September reading was revised to the upside. However, the indicator is quite erratic so the Dollar was under attack due to a slack in another reading – the cost of non-defense capital goods. It well characterizes the component of investments in the dynamics of aggregate demand, and the fall in October by 0.5% was the first unpleasant news in almost a year:
Nevertheless, the consumer sentiment of the University of Michigan has improved even more – the indicator has grown to the level of 98.5, exceeding expectations
The American currency was actively sold at last and this week. On Thursday, bears slowed down, the average dollar index is waiting for the ECB protocol release of October meeting, in which investors will receive forecasts for inflation and economic growth, which will allow them to adjust positions on the main component of the index – EUR/USD.
The pound sterling has successfully overcome the 1.33 mark thanks to the weak Dollar, as well as neutral data on GDP and its components. The reason for the disappointment was a decline of capital investments, which is logical because of the uncertainty around Brexit, but the situation on current account has improved, both from the export and imports. In 2017, investments steadily decreased from 0.8% in the first quarter to 0.2% in the third, and the business confidence fell to -11 in the third quarter. This can be linked to the growing anxiety around the trade deal with the European Union and it is obvious that the lack of progress will continue to worsen the business environment putting a dent on the economic growth.