Forex: Dollar May Extend Gains as PPI Data Fuels Pre-FOMC Speculation

New York (Dec 13)  The US Dollar may push higher as November’s PPI data shows a pickup in wholesale inflation and fuels QE “taper” speculation before next week’s FOMC meeting.   Talking Points:

  • Most Major Currencies in Consolidation Mode in Overnight Trading Hours

  • Japanese Yen Narrowly Underperforms, Carry Funding Rotation Suspected

  • US Dollar May Rise as PPI Data Fuels Pre-FOMC QE “Taper” Speculation

Most major currencies were little-changed against the US Dollar in overnight trade. The Japanese Yen continued to underperform in a move that seems to reflect continued rotation out of USD-funded carry trade positions into JPY-based alternatives. The cost of funding carry trades in Dollars rose to the highest in five years relative to doing so in Yen yesterday after a better-than-expected US Retail Sales report fueled speculation about an imminent “tapering” of Fed QE asset purchases.

 Looking ahead, the economic calendar is somewhat lackluster through the end of the trading week. November’s US Producer Price Index data is in focus. Expectations call the year-on-year growth rate to accelerate to 0.8 percent, marking the fastest pace for wholesale inflation in three months. A pickup in pipeline price pressure may help reinforce the US economy’s readiness for a reduction of Fed stimulus efforts, broadly boosting the US Dollar as “taper” speculation heats up before next week’s FOMC meeting