Dollar Under Pressure As December Rate Rise In Doubt

US Dollar Hits Lowest Level Since 2015

The US Dollar index printed fresh lows again this week, falling to its lowest level since 2015. One of the major forces behind the dramatic sell-off is the scale of uncertainty linked to the Fed who will see nearly its entire staff replaced over the coming months. The Fed is expected to raise rates again at its December 13^th meeting, though expectations have greatly receded in light of the recent slump in inflation. The Fed will clearly be monitoring inflation figures ahead of the December meeting looking for evidence to support their judgment that inflation weakness is temporary.  However, recent Fed comments suggest that policymakers are themselves now losing conviction in the likelihood of this happening

The Fed will clearly be monitoring inflation figures ahead of the December meeting looking for evidence to support their judgment that inflation weakness is temporary.  However, recent Fed comments suggest that policymakers are themselves now losing conviction in the likelihood of this happening. August CPI due on Thursday is expected to show inflation having ticked up over the month on the headline figure while core inflation is expected to have fallen back. A further weak print at this stage would all but finish USD off for the year.

Despite the sell-off in USD, recent data (outside of CPI) has continued to show positive momentum in the economy. Real GDP growth for Q2 was revised higher to 3% from the prior 2.6%, fuelled by stronger increases in consumption and business investment. Firmer personal finances and confidence indicators, supported by a healthier labor market and household balance sheets are continuing to underpin household spending.

Trump Administration Looking Weak

While discussions regarding tax reform have started to move more into focus, there is little to suggest that there will be any material economic impact from US fiscal policy adjustments over the next year as investors seem increasingly convinced that the Trump administration will struggle to deliver any fiscal stimulus.