Dollar higher ahead of Fed December rate hike

December 8, 2017 03:50 PM
Central bank decisions to dominate busy week

The U.S. dollar appreciated during the week as the tax reform inched closer to reality. Fundamental data in the U.S. was positive for the currency but hourly wages again disappointed by coming below expectations. Given the importance of inflation indicators inside the Fed stagnant wages could make it hard on the U.S. central bank to keep raising rates in 2018.

The economic calendar is packed on the week of December 11 to 15. Inflation data in the U.S. will be published by the Bureau of Labor Statistics on Wednesday, December 13 at 8:30 am. Core CPI is expected to gain 0.2 % but prices taking into consideration food and energy are forecasted to increase by 0.4 %.

The U.S. Federal Reserve will release its quarterly economic projections and Federal Open Market Committee (FOMC) statement on Wednesday, December 13 at 2:00 pm EST. The highly anticipated December meeting of the Fed is expected to bring a 25 basis points rate hike. The market has already priced in that move as it was heavily telegraphed by policymakers. Economists are forecasting 3 rate hikes in 2018 and the dot-plots could align with those estimates. Fed Chair Janet Yellen will make her final appliance as Chair when she hosts the FOMC press conference at 2:30 pm EST.

The Bank of England (BoE) will release its monetary policy summary on Thursday, December 14 at 7:00 am EST. There is no change expected to the UK benchmark rate which stands at 0.50 %. The European Central Bank (ECB) will follow close by with their release of their rate statement at 7:45 am EST. ECB President Mario Draghi will host a press conference at 8:30 am EST. The ECB is not expected to change its QE program or interest rates at this time, but the market will be on the lookout for its 2020 growth and inflation forecasts.

The euro/U.S. dollar (EUR/USD) currency pair lost 1.12 % in the last five days. The single currency is trading at 1.1762 depreciating against a rising USD. The dollar has gained on the back of tax reform optimism. The lack of pro-growth policies this year saw the dollar freefall as the promised tax reform and infrastructure spending have not materialized. The two bills passed by Senate and Congress could make tax reform a reality and have given the greenback a shot in the arm. Politics remain a big driver of the market. This week President Trump signed a short-term funding bill pushing back the larger debt ceiling debate to December 22.

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