Market volatility continues to rise as a deluge of economic indicators drives the price action for the U.S. dollar.
American inflation data came in on target with a 0.2% gain; U.S. manufacturing continues to outperform global rivals and new home sales hit a seven-year high. Given that inflation is one part of the Federal Reserve’s dual mandate, the market was eagerly anticipating the data and what its impact would be on the struggling greenback.
Inflation rose slightly which boosted the USD across the board momentarily until market participants had more time to dissect the actual release. Net positive economic data was not enough to shake off the ghost of last week’s dovish Federal Open Market Committee (FOMC). Chair Janet Yellen surprised the market by doing the expected (removing the word ‘patient’ from the FOMC statement) but adding an unexpected twist (reducing inflation and growth estimates in 2015). The mixed messages finally took the air out of the USD’s sails and it started giving back all the gains versus major pairs and commodities.
The U.S. Department of Commerce’s monthly Durable Goods report will be released Wednesday, March 25 at 8:30 a.m. EDT. Volatile orders are removed from the report for a more accurate application of the report as a leading indicator of the health of the U.S. economy. Analysts are forecasting a 0.4% increase in the core (excluding transportation) report. The previous report was the first to land in positive territory after several disappointing reads, so the market will be watching to see if the economy can maintain the pace for a second month in a row after struggling for much of the last quarter of 2014. Given the state of the USD, a negative durable goods data point could put further downward pressure with not hope for solid footing until Yellen’s speech on Friday at the Federal Reserve Bank of San Francisco Conference. Her topic, “The New Normal for Monetary Policy,” might shed some light on the central bank’s intentions, and why some members are saying that the market’s views and the Fed’s views are so far apart.
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