Risk Of Continuing Near-Term Weakness For The US Dollar

New York (Dec 9)  Surprisingly better-than-expected US economic data in the past week, particularly stronger November employment figures and Q3 GDP reading, didn’t support the overall US Dollar index (I.USDX), which continued with its declining trend for a fourth consecutive week. The US Dollar initially rallied after better-than-expected US jobs data, but quickly gave back most of its gains as market participants seemed convinced that it wasn’t enough to push the Federal Reserve to begin slowing the pace of its $85 billion monthly bond-buying program at the December meeting.

With relatively light US economic calendar in the week ahead, investors will focus on monthly retail sales data, scheduled for release on Thursday, for further evaluation of the US economic recovery. Consensus expectations are looking for retail sales to have risen 0.6% in November and core retail sales, that excludes automobile sales, are expected to register a modest gain of 0.2%.

Also watch for Producer Price Index (PPI), scheduled for release on Friday. Economists expect PPI to remain unchanged for the month of November, while core PPI, that excludes food and energy, is expected to remain muted and rise 0.1%.

Along with the monthly retail sales data, market participants will also evaluate the repercussion of strong November jobs report on the Federal Reserve’s policy decision. The Fed is scheduled to hold a two-day policy meeting on Dec. 17-18.

The US Dollar’s inability to strengthen against other major currencies, following a positive surprise from Friday’s NFP data, indicates the risk of continuing near-term suffering for the US Dollar. Moreover, in absence of any major market moving economic event in the up-coming week, investors are likely to witness another week of additional weakness for the US Dollar and only some surprising clues of Fed tapering its monetary stimulus in December, if any, would be supportive for the US Dollar.