Retail Sales, Producer Prices Bolster Rate Hike Narrative

USD

The U.S. dollar extended its strong week overnight, rallying against almost all of its major rivals.  The exception would be the commodity-based currencies that found support following strong Chinese inflation data.  The greenback has been buoyed by rising interest rate expectations.  The minutes of the last Fed meeting showed that policy makers were warming up to the idea of higher rates "relatively soon."

Today's economic data should bolster that narrative.  Advanced retails sales met expectations, rising 0.6% in the month of September.  The core sales that excludes volatile auto and gas sales, also met expectations of a 0.3% rise.  A separate report showed that producer prices are also on the rise in the U.S., which should give added support to the case for higher interest rates.  Total PPI rose 0.3% on a month over month basis, higher than the 0.2% expected by economists. All of the core readings either matched or slightly outpaced expectations as well.   Later, the University of Michigan consumer sentiment report is slated to cross the wires. 

JPY

After rallying yesterday on poor Chinese trade data, the Japanese yen is on the defensive again this morning.  China’s factory-gate prices rose for the first time since 2012 indicating the Chinese economy is stronger than initially thought.    Consumer price inflation also rose for the first time in five months. 

The data sparked a rally in global equities with Japanese Nikkei rising half a percent and the European Stoxx 500 rising nearly 2.0%.  The risk rally dampened demand for the safe-haven yen.  However, strong Chinse data cause the Australian dollar to rally nearly 1.0% against the U.S. dollar.  China is Australia's largest trading partner. 

GBP

Another day, another sell-off for the British pound.  The sterling remains under pressure due to the economic and political uncertainty surrounding the pending Brexit.  The President of the European Council, Donald Tusk, had harsh words for the U.K.'s prospects.  He said the options on the table were either a "hard Brexit" or "no Brexit" and that the notion that the U.K. would be able to remain a part of the EU’s single market was "pure illusion."

The sterling has lost nearly 2.0% against the U.S. dollar this week.  Overall, the pound is 18% weaker from the Brexit vote in June.