US Retail Sales Fall; Focus on the Fed

USD

For the second day the U.S. dollar held tight ranges as traders positioned themselves before this afternoon’s much-anticipated Federal Reserve announcement. It is widely expected (near 100%) that the FOMC will lift interest rates by at least 25 basis points at 2 p.m. today. Markets are pricing in a small chance of a 50 basis point bump, but we see this as unlikely. As a rate hike is seen as a foregone conclusion, we expect the dollar’s reaction to be muted until Janet Yellen’s press conference which will begin at 2:30 pm. Analysts will pour over her words in an attempt to predict future interest rate moves. In addition, the Fed will release the “dot plots” which will show policy maker’s expectations of rate moves in the coming year. Tempus expects two additional rate hikes in 2017.

This morning’s first tier economic data has had limited impact on the dollar due to the importance of this afternoon’s events. Advanced Retail sales disappointed, registering at 0.1% in November, missing expectations of 0.3%. Last month’s figure was also downwardly revised. The “core” reading that excludes autos and gas, also missed estimates. A separate report showed that producer prices ticked slightly higher in November. Higher inflation pressures could allow the Fed to hold a more hawkish stance towards future monetary policy.

 

EUR

The EUR/USD was unable to find a definitive direction overnight as traders across the globe are focused on Janet Yellen’s tone this afternoon. European economic data underwhelmed with Eurozone industrial production falling 0.1% in October, missing expectations of a 0.1% rise. With no further data set to be released across the pond today, expect to the Euro to take its cues from the Fed this afternoon.

 

GBP

The British pound took a break from its recent overnight, falling slightly against the U.S. dollar. The sterling found support earlier this week as consumer inflation hit a two year high. However, today’s employment data fell flat. The Office for National Statistics showed that employment fell for the first time in a year. Earning’s ticked higher and touched the highest rate since August of 2015, but was unable to boost the sterling. Some analysts have suggested that the print could be more than just a hiccup for the British economy with the Brexit pending.