November 15, 2024

“The drop in EUR/USD to below 1.05 is something we have not seen since October 2023, but it didn’t last for very long. US retail sales today is another opportunity for the dollar to jump that hurdle.”

Sam Cornford – Head of Trading

USD

The market kept on buying dollars yesterday even as Treasury yields moved lower. PPI inflation printed in line with the consensus at 0.2% m/m, while there was some more stickiness than expected in the 0.3% core measure. The report broadly backed up the suggestion from Wednesday’s CPI numbers that underlying inflation has somewhat stagnated in recent months, although for now the outlook for core PCE is soft enough that the swap markets had upped the implied probability for a December cut to 60% over the past few days (several components of PPI feed straight into the Fed’s preferred inflation measure). However, policymakers have generally started to sound a touch more hawkish. Kugler – typically on the more dovish side – became the first this week to start talking about a rate pause if risks rise that disinflation stalls, and Powell himself commented last night about the remarkable performance of the US economy and how this gave room to move ‘carefully’.

Today, the focus is on retail sales at 14:30 CET, where the consensus is for a slightly weaker but still solid 0.3% print. Industrial production is then expected to decline by 0.3% and the Fed’s Williams speaks this evening.

GBP

GDP growth slowed considerably in the third quarter to 0.1%, a far cry from the strong 0.7% and 0.5% prints in the first half of the year. That is weighing on sterling this morning, particularly against a recovering euro. To some extent both the good prints in the earlier parts of the year and the bad print in Q3 reflect the general volatility associated with some of the components of GDP, and it is unlikely that the Bank of England will put too much weight on today’s figure. Without a more serious slowdown in growth, the real decider for the pace of rate cuts will be services inflation, which we will get a look at next week.

EUR

The euro dropped below 1.05 for the first since October 2023 yesterday, but it encountered some stiff resistance once it hit the 1.04s and is now closer to 1.06. The October meeting minutes were released yesterday, and they showed that some policymakers were perhaps more reluctant to cut by 25bps than first appeared. The argument that won them over was that, with the downside risks to growth rising, it made sense to move earlier from a risk management perspective – if it turned out to be unnecessary, then it could be thought of as only bringing forward the December cut. Q3 growth was confirmed at a relatively solid 0.4% in the second estimate yesterday. The diary is quiet today, but we do get some commentary from Lane and Cipollone at the ECB.

Markets

The relatively strong PPI print was enough excuse for equity investors to trim stock gains further yesterday. The headline story, however, was an inexplicable near 2% surge in the Euro Stoxx 50. In the commodities world, it is worth nothing that gold has now slumped almost 9% since the beginning of November.

Main Economic Events (All Times CET)

3:00am: Chinese Industrial Production
8:00am: UK Q3 GDP
2:30pm: US Retail Sales
3:15pm: US Industrial Production

 

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