Dollar Loses Momentum as Stocks Drop Awaiting Inflation Data

The EUR/USD rose 0.42 percent on Wednesday. The single currency is trading at 1.1539. The surge was due to positive Brexit comments but was limited as Italian budget drama continues. As the deadline for a final divorce agreement between the UK and the EU nears there has been a lot of talk of getting closer to an amicable split. The market is still awaiting any definite details that could send the euro even higher.

The US dollar is taking a breather even as US yields continue to climb. Inflation data in the US is still supportive of more rate hikes. The PPI release today met the forecast at 0.2 percent after last month’s loss of 0.1 percent. Tomorrow’s CPI datapoint will be crucial for the US dollar as fundamentals continue to push the greenback higher.

Yesterday US President Donald Trump once again spoke against more Fed rate hikes. The President echoes the view of many (including some Fed members) that inflation is not a problem and is urging the Fed to slow down its planned rate hikes. The Fed has hiked 3 times this year and is on track to add another 25 basis points lift in December.

Loonie Lower as USMCA High Fades

The Canadian dollar is lower on Wednesday. The loonie is lost 0.38 percent versus the USD as lower oil prices and higher US yields put downward pressure on the currency.

The IMF did not cut the growth forecast for Canada, in fact mentioned that the USMCA might boost growth. The loonie has been riding the trade agreement wave, but the market is now focusing on fundamentals.

Returning form the Thanksgiving holiday CAD traders have seen housing starts and building permits come in lower than expectations. The Bank of Canada (BoC) could hike rates in October, but economic data has to prove that the economy can take it.

Although the USMCA is a big positive for the loonie, the agreement is not final as politicians in all member countries need to ratify the agreement and with midterms in the US and a looming federal election in Canada next year there could be some obstacles ahead.

Mexican Peso Stays Close to 19

The Mexican peso had a volatile day as the US PPI validated the Fed’s rate hike path. The Mexican central bank kept rates unchanged in October and the market is anticipating a rate hike in December the U.S. Federal Reserve. Interest rate divergence put some pressure on the peso, but after reaching daily highs the US dollar ran out of steam. The pair is trading at 19.03 awaiting the release of US inflation on Thursday.

Gold Higher Awaiting US Inflation Data

Gold prices rose 0.14 percent on Wednesday. The US dollar is mixed against major pairs with the euro and sterling gaining on positive Brexit news. The dollar is losing some steam after the producer price index PPI met expectations at 0.2 percent. Investors will be on the lookout for the Consumer Price Index (CPI) to be released on Thursday at 8:30 am EDT.

A rate hike by the Fed was already priced in at the end of the September meeting and with high probabilities of a December rate lift its time to question the staying power of the US dollar.

Global growth has been downgraded and if trade disputes increase the pace of growth of the US looks to take a hit next year. Gold will fail to get any traction if US economic data continues its steady solid pace.

Oil Prices Await US Weekly Inventories

Oil prices dropped 2 percent on Wednesday. Energy prices are back to levels last seen on Monday after a global growth downgrade and the lower estimated impact of Hurricane Michael in the US.

The IMF downgraded its outlook for global growth on Tuesday. Growth is now estimated at 3.7 percent this year and next, from a previous 3.9 percent made last summer. Trade concerns were the biggest factor behind the downgrade.

Weather disruptions will continue to keep the black stuff bid as the sanctions against Iranian exports are set to begin. Buyers have already limited their purchases of Iranian crude and decisions like that of Sinopec to halve its purchases of oil loadings signal a more stringent enforcement from the US.

Hurricane Michael is not expected to affect Gulf of Mexico production beyond workers who were evacuated return to work after the storm has passed. The release of API inventories and weekly US crude data by the Energy Information Administration (EIA) will weigh on prices later today and tomorrow.

US weekly energy stocks are expected to increase by 2.3 million barrels and could put further downward pressure on prices. Lack of pipelines are a concern as Permian Basin oil and natural gas supply will be constrained. The bottleneck created by higher supply into an existing pipeline capacity will be sorted next year, but in the meantime it won’t be a big of a factor.
Market events to watch this week:

Thursday, October 11
7:30am EUR ECB Monetary Policy Meeting Accounts
8:30am USD CPI m/m
11:00am USD Crude Oil Inventories
Friday, October 12
10:00am USD Prelim UoM Consumer Sentiment

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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