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Dollar Weakens as Risk Appetite Returns Ahead of Retail Sales Data

Published 2021-10-15, 03:44 a/m
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By Geoffrey Smith 

Investing.com -- The dollar was slightly lower in early trade in Europe on Friday, after a strong rebound in risk appetite on Thursday supported higher-yielding currencies against safe havens.

By 3:30 AM ET (0730 GMT), the dollar index that tracks the greenback against a basket of advanced economy currencies was down less than 0.1% at 93.938, thanks mainly to declines against the basket’s commodity currencies.

USD/NZD was down 0.2% and USD/AUD and USD/CAD were both down 0.1%, a day after a slightly weaker-than-expected producer price inflation print and reasonably solid bank earnings triggered a sharp rise in U.S. stocks.

The EUR/USD also traded back above $1.16 for the first time in 10 days, while sterling was consolidating its Thursday gains at $1.3697, after rising strongly in reaction to progress on negotiations with the EU over implementing the Brexit agreement in the market of Northern Ireland.

The week is set to end on a reasonably relaxed note as inflation fears recede a little. Yields on benchmark 10-Year Treasury bonds are back at 1.54%, some eight basis points below their highs earlier this week.

However, the factors behind inflation – including massive fiscal and monetary stimulus that has led to higher energy prices and shortages of semiconductors and other components – are taking time to unwind. Analysts pointed out that the slight undershoot in the PPI owed much to a - possibly short-lived - decline in airline prices. Prices for crude oil, natural gas and other industrial commodities continue to trade near multi-year highs, and there are increasing signs of organized labor demanding higher pay rises (notably at U.S. agricultural equipment maker Deere (NYSE:DE) & Co.).

Richmond Federal Reserve President Tom Barkin said on Thursday that there would be “no shame” in admitting that inflation is proving ‘stickier’ than expected – comments taken by some as a veiled criticism of a Fed board that has stuck doggedly to the narrative that this year’s rise in prices is only ‘transitory’.

The day’s main data will be U.S. retail sales at 8:30 AM ET (1230 GMT), where a decline of 0.2% on the month is expected, extending a pattern of stop-start consumption that has established itself over the last six months. Attention will also be given to the University of Michigan’s Consumer Sentiment index for September at 10 AM ET, especially with regard to its inflation expectations. Last month’s survey showed consumers expect prices to rise 4.6% over the next 12 months, down from a 10-year high of 4.7% in July.

 

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