North Korea may not be quiet for long

At the beginning of this week, the dollar’s recouped some of the losses incurred late on Friday when investors decided to sell off the greenback to price in risks emerging from hurricanes Irma and Harvey (and to a lesser extent Jose) as well as fears of further missile testing on the Korean peninsula. Instead, Kim Jong-Un decided to celebrate the country’s birthday in a more peaceful fashion, and the markets pulled the dollar back to its feet as a result.

Nonetheless, last week’s hydrogen bomb test has kept pressure on the United Nations to install the harshest sanctions on the kingdom yet. On their latest reading, the sanctions looked to include oil, textiles and an asset freeze on everything Kim Jong-Un’s touched, but it looks like the proposals will be watered down to satisfy the Russian and Chinese contingent of the UN Security Council. The North Korean government have already threatened a sharp backlash should the sanctions be installed and, even if they’re softer than initially proposed, markets should understand that the hermit kingdom’s got a track record of turning on its heel and changing its mind overnight. More headlines to that effect over the coming five days will result in the dollar being sold off again.

Even hurricane damage can be forecasted these days

Late on Friday the greenback was subject to selling pressure well into the close as investors and markets took fright at the images of Hurricane Irma making its way across the Atlantic, ready to make landfall on Florida. After making landfall as a category 4 hurricane, Irma’s weakening from there is seen putting a cap on the toll of damage toward the lower end of the $20-$65 billion expected range. In summary, the recovery of the dollar this morning is more a case of the worst being avoided, as opposed to something purely positive happening stateside, and EUR/USD’s shifted back below 1.20 in response.

Inflation quandary

This week’s inflation numbers on both the consumer and producer side will have to behave very nicely in order to fit the Federal Reserve’s current narrative. Producer prices numbers on Wednesday are expected to rise to 2.4% year-on-year (up from 1.9%) and the consumer is seen rising to 1.8% from 1.7%. Both of these figures taken at face value suggest the central bank should be prepared to take action should inflation heat up further – but current levels aren’t inflationary enough to justify taking such a move.

Have a great week