Like a prize fighter on the ropes, the US Dollar keeps getting knocked down each time it staggers to its feet. On Wednesday, its index against a basket of major currencies opened at 88.90 but was then pushed steadily down to a low point in the European afternoon of 88.52. After the latest FOMC Statement – which reads very slightly more hawkish than the December version – it climbed back earlier this morning to 88.98 before once again heading a little lower.
Putting two FOMC Statements side by side always feels a bit like the job the Kremlinologists had back in the Soviet-era when they’d look at a photograph of the Politburo and see who had moved a pace or two to the left or right, who was missing and who were the fresh new faces. The Fed said that, “the labor market has continued to strengthen and economic activity has been rising at a solid rate. Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent”. So far, pretty much the same faces as December’s photo! But, whereas last month inflation was expected to, "remain somewhat below 2 percent in the near term", this line has been dropped and instead, "Inflation on a 12 month basis is expected to move up this year”. For choice, your author interprets this is a slightly more hawkish stance and the market-implied probability of a hike at the March 21st meeting has risen to 83%.
With the two political and monetary policy set-pieces of this week now out of the way, there’s a whole bunch of US economic data over the next 24 hours. This morning brings the weekly jobless claims, both versions of the manufacturing PMI survey (Markit and ISM) as well as construction spending. Tomorrow is the first Friday of the month so it’s the non-farm payrolls and earnings numbers plus factory orders, durable goods and the Michigan consumer confidence survey. The Atlanta Fed will be updating its GDP forecast later this evening and the USD index opens in North America this morning at 88.75 as 10-year bond yields are back up at 2.75%.