Expectations that the Fed will proceed with a rate hike in December and an encouraging report on JOLTS job openings pushed the dollar higher during European trading hours, although Fitch raised its US medium-term debt-to-GDP forecasts. On the other hand, the euro was unable to find support on better-than-expected retail sales figures and despite the news that some key ECB officials opposed the central bank’s decision to continue buying assets until inflation improves.
Fitch said on Tuesday that it expects a version of tax plans to pass the US Congress and push the federal deficit to 4% of GDP by next year, while it also anticipates US debt to reach 120% of GDP from the current 77% by 2027, questioning whether the tax cuts will pay for themselves.
Regarding data releases out of the US, figures on JOLTS job openings came in flat as expected, showing that 6.093 million positions were created in September compared to 6.090 million seen in August.
In the meantime, the US President, speaking at a news conference with the South Korean President Moon Jae-in in Seoul, used a milder rhetoric towards North Korea, calling the regime to "come to the table and make a deal", while he also admitted that there was progress on issues having to do with North Korea.
The dollar index rose to 95.14 before slipping back to 95, being 0.28% up on the day. Dollar/yen gained 0.26%, rising to 113.95, while dollar/loonie jumped by 0.80% to 1.2800.
Gold pulled back by 0.58% to $1,274.20 per ounce.
In the Eurozone, retail sales expanded by 0.7% m/m in September after a contraction of 0.1% in August (revised upwards from -0.5%), beating forecasts of a 0.6% growth. On a yearly basis, the measure rose by 3.7%, above the expected 2.7% and August’s 2.3%. Despite improvements in Eurozone’s household spending, the euro stretched its downleg near a four-month low of $1.1553 on the back of a stronger dollar.
In other news, sources familiar with ECB matters revealed that in October’s meeting top ECB policymakers including board member Benoit Coeure, the President of the Bundesbank, Jens Weidman, and the Governor of the Bank of France, Francois Villeroy, recommended to tighten the central bank’s quantitative easing program even if inflation fails to rise towards the target. Note that, the ECB announced on October 26 to continue buying bonds until price pressures increase. The ECB chief, Mario Draghi, did not comment on monetary policy at the second ECB Forum on Banking Supervision on Tuesday, while the ECB board member Sabine Lautenschlaeger said she "would have liked a clear exit" from the asset purchase program.
The pound posted mild gains in the first trading hours before falling back to $1.3135 after British house price growth gauged by the Halifax Community Bank came in more or less as anticipated. Particularly, October house prices rose by 0.3% m/m, below September’s 0.8% and slightly above the 0.2% projected. Year-on-year, the Halifax index increased by 4.5%, matching expectations. However, uncertainties around Brexit developments pressured the currency with investors waiting for discussions to enter the next stage of negotiations on Thursday, whereas earlier on the day, the UK Prime Minister, Theresa May, said she would submit to the parliament on Tuesday a legislation permitting Britain to pursue an independent trade policy after the divorce from the EU.
Today’s global dairy auction showed prices declining by 3.5% down compared to a contraction of 1.0% two weeks ago, adding further losses to the kiwi and pushing it to $0.6906 (-0.56%) despite the new government pledging to not target the foreign exchange as part of the RBNZ’s monetary policy.
The aussie continued its downtrend, retreating to $0.7650 (0.52% down) after RBA policymakers held rates steady at a record low of 1.5% on Tuesday and retained their concerns on the path of inflation and overloaded household debt.
