At the beginning of the week the US dollar retraced lower versus the major currencies, but regained some ground on Thursday on the strong November retail sales data. The commodity block currencies are trading at their lows against their North American counterpart on the back of a continuing drop of oil prices. However, the joint US dollar index still remains well below the recent highs.
Next week the market attention will be glued to the Federal Reserve meeting on Wednesday, December 17. Firm November data point to a potential hawkish changes in the Fed’s forward guidance, what could support demand for the US dollar into the year-end. There is a market speculation that the Fed could drop its pledge to keep interest rates near zero for “a considerable time”. In this case, investors will be convinced in a rate hike arriving in June or July 2015.
On the other hand, inflation in the United States remains low and keeps on falling. The current 1.5% rate is far below the Fed’s 2% inflation target. What’s more, global slowdown concerns also weigh on expectations: is the US economy strong enough to remain a safe island?
Given all that, we expect the Fed to stay in a wait-and-see mode for a couple more months, leaving the tone unchanged. The current turmoil on the energy markets, could impact the global price growth further in the year 2015.
As for the other highlights of the next week’s US economic calendar, you should also pay attention to the November Consumer price index and to the bunch of manufacturing and industrial production indices on Monday, Tuesday and Thursday.
Kira Iukhtenko