Dollar dented by poor personal consumption

Personal consumption expenditure numbers – one of the Fed’s preferred measures and indicators of inflation – fell below expectations, slipping to just 0.1% on the month and 1.3% on the year. How this will affect the Fed’s thinking in the coming months is unknown, but it’s sure to crop up in meetings ahead of an expected December rate hike should this trend continue.

As for the possible weather effect from today’s figures, the Bureau of Economic Analysis stated that adjustments were made due to Hurricane Harvey in order to cover up patches in the data that are not yet available. As these stats drop in over the next two months, we may glean a clearer perspective of the inflation horizon.

The dollar didn’t like the release and EUR/USD has staged a firm recovery from the week’s lows of just above 1.17.

Fed speakers all singing from the same hymn sheet

We have seen many Fed speakers this week but the dollar was helped further by Kansas City Fed President George yesterday, saying that rate hikes are the best way to ensure that the US economy’s recovery is sustained. “Further gradual adjustment in short-term interest rates based on an economy growing above trend…will be important if we want to continue this long expansion,” George said.

This rhetoric, alongside corporation tax cut hopes, has been critical to the dollar’s better performance this week and if it’s not sustained, fresh lows in the greenback could be seen very quickly.

The day ahead

With much of the week’s risk events now over, the market’s attention may shift back toward Europe and the pending Catalan referendum on Sunday. Citizens of Catalonia have organized an independence referendum that’s been effectively outlawed, banned and besmirched by the central Spanish government. The vote is likely to go ahead and is also likely to sway significantly towards an independence vote that Prime Minister Rajoy will refuse to recognize. How the government handles the crisis from here forward will begin to have significant effect on the single currency.

Have a great day.