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Spectacular Economic Data Releases Keep Dollar Supported

by Karl Schamotta | November 24, 2021

The Federal Reserve’s preferred inflation measure – the core personal consumption expenditures price index – climbed 4.1 percent in October from the same month last year, hitting a multi-decade high as the central bank struggled to keep consumer and business price expectations anchored while pursuing its full employment objectives.

Data released by Bureau of Economic Analysis showed headline prices rising slightly less than forecast, up 0.6 percent month-over-month and 5 percent year-over-year, reflecting a 30.2 percent annual jump in energy prices and a 4.8 percent rise in food prices.

Defying a sharp drop in consumer sentiment, household spending rose a slightly faster than expected 1.3 percent after a 0.6 percent increase in September. Personal income climbed 0.5 percent month-over-month, with wages and other income gains offsetting a loss in government benefits.

Separately, data from the Census Bureau indicated that new orders for manufactured goods fell for a second consecutive month in October, dropping -$1.2 billion or -0.5 percent to $260.1 billion. Excluding transportation, new orders increased 0.5 percent. Shipments were up $4.0 billion or 1.5 percent to $261.5 billion, and unfilled orders increased for the 9th consecutive month, climbing $3.1 billion or 0.2 percent to $1,249.7 billion. Inventories of manufactured durable goods rose $2.8 billion
or 0.6 percent to $466.0 billion.

And numbers from the Bureau of Labor Statistics showed initial unemployment claims dropping to a seasonally-adjusted 199,000 last week. This marked the lowest total since 1969, with job openings vastly exceeding the number of people looking for work.

Treasury yields slumped last night after the Reserve Bank of New Zealand raised rates by 25 basis points, opting to tighten policy more gradually than some market participants had hoped – while foreshadowing a more cautious approach at other central banks.

But the dollar is holding onto a nearly 0.5 percent weekly gain, largely achieved after Joe Biden’s decision to renominate Jerome Powell as head of the Federal Reserve, with Lael Brainard becoming vice chair of the rate setting committee. In comments after the announcement, both officials appeared to execute a decisive pivot, emphasizing their determination to fight inflation, softening the labour-market rhetoric that has characterized policy communications since the onset of the pandemic.

Earlier this morning, San Francisco Fed President Mary Daly followed Atlanta Fed President Bostic, Governors Waller, and Vice Chair Clarida in hinting at a faster reduction in asset prices, telling Yahoo Finance “If things continue to do what they’ve been doing, then I would completely support an accelerated pace of tapering”.

In overnight trading, the euro continued weakening after Germany’s Social Democrats, Greens, and Free Democrats agreed to form a government headed by Olaf Scholz. The finance minister is set to succeed Angela Merkel as chancellor after building an incongruous coalition that is expected to increase minimum wages and increase infrastructure spending – while keeping the “schwarze Null” constitutional debt brake intact. Market hopes for a rebalancing at the core of the European project look likely to be disappointed.

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