Further Downside to the Dollar as Data Disappoints
The Dollar took a punishing on Friday night after weak CPI and retail data. This was somewhat expected by the market but the greenback still lost significant ground against all of the majors. There was a notable move of 2 big figures against the Aussie which broke through highs as far back as April 2016. On the other side of the coin, a relatively muted response from the Euro which failed to break through the weeks high of 1.149.
Fed members Kaplan and Evans joined Yellen by commenting that they see less rate hikes in the near future as the Fed focuses on trimming its balance sheet first. This sent the US stock markets to new highs as equities investors relish the thought of lower rates for longer, which helps keep borrowing costs down, and in-turn boosts corporate earnings.
We also saw some interesting Reuters polls out over the weekend which put September as the most likely month for ECB policy change. This is likely to be just a reduction in QE, but still a significant shift in policy direction. Also economists are picking the BoC to make their second rate hike in October.
All this points to further downside for the dollar in the next few sessions and traders will now be assessing their medium term views in light of the recent more cautionary Fed and other more Hawkish central banks.
Looking forward today, as the Japanese enjoy a bank holiday in the sun, we have Chinese GDP and Industrial Production data at midday. This will set the tone for the Aussie after the big move over the weekend, and whether we will see traders set their sights on highs as far back as 2015. Tonight we have Euro CPI which is expected to be flat at 1.3%.
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