DailyFX

Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead

John Kicklighter

DailyFX.com -

Talking Points:

  • Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead

  • British Pound Could Lose Further Rate Ground if Autumn Statement Soft

  • Euro Traders Should Look Beyond the ECB’s Stimulus Plans

Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead

As the primary pricing currency for commodities, the Dollar suffered at the hands of Monday’s gold and oil surge. Yet, that relative value lever works both ways. This past session, the precious metal and energy market both corrected. While the subsequent commodity move was milder than the week’s opening fireworks, the Greenback gained more traction on the correction rather than the initial move. In part, this likely reflects the tepid conviction of the physical goods’ recovery, but it also speaks to the currency’s position when it comes to relative strength/value. Though, how long this tacit appeal holds out without further improvement in its own circumstances remains to be seen. Headline fundamentals this past session did little to hearten rate forecasts. Fed speeches from Chairwoman Yellen, Vice Chair Fischer, Dudley and Brainard either avoided weighing in on rate timing fodder or took a neutral view.

In the upcoming session, another couple Fed speeches (from Plosser and Brainard) are scheduled, but we may not have to resort to weeding out consequential views and remarks from their obfuscated comments. Far more black-and-white are the Fed’s Beige Book and ADP payrolls report for November. The former is the collective US economic review from the various region for reference at the upcoming (December 17) FOMC rate decision. Despite the month-to-month deviation in its correlation to the official NFPs, the market still considers the proprietary job statistics a good proxy to Friday’s data. With a jump in Treasury yields along with the implied rates in Eurodollar and Fed Funds futures this past session, the updates could do well to feed volatility on this theme. And, though it may not be the Dollar’s primary motivator at the moment with the S&P 500 treading just below record highs, it is worth keeping tabs on the level of sentiment in the market. In its third annual financial market risk assessment for Congress, the Treasury warned the ‘reach for yield’, geopolitical tension and fire sales are lingering risks for the system.

British Pound Could Lose Further Rate Ground if Autumn Statement Soft

What was the foundation to the rise in hawkish views for the BoE? Arguably, the stronger and more persistent than expected pace of economic growth has stood as the backbone for bullish Pound traders. However, with inflation pressures easing back and the economic clip slackening alongside global (European) counterparts; we have seen a significant moderation in the timetable for hikes. Inflation pressures are still weak – the BRC shop price index held at its series-record low and the BoE expects to write a letter for CPI dipping below 1 percent – but the inclusion of a quickly cooling pace of growth could carry far more weight for speculation. Today’s Autumn Statement will weigh in with official forecasts.

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