US DOLLAR OUTLOOK – FOMC MINUTES, RETAIL SALES, YIELDS IN FOCUS
- US Dollar bears sent the broader DXY Index recoiling -0.3% lower last week
- Inflation, consumer sentiment data weighed negatively on Treasury yields
- FOMC minutes due for release could reinvigorate Fed hawks and USD bulls
The US Dollar weakened broadly and dragged the DXY Index -0.3% lower on balance this past week. This erased about half of the gains notched post-NFPs and leaves the broader US Dollar up 0.4% month-to-date. Recent selling pressure across USD price action largely follows disappointing economic data in the eyes of Fed hawks. Specifically, month-over-month inflation decelerated from 0.9% in June to 0.5% in July. CPI slowing gave some credibility to the Fed’s transitory inflation narrative, which in turn, sparked an unwind of Fed taper bets and US Dollar strength.
US DOLLAR INDEX PRICE CHART WITH TEN-YEAR TREASURY YIELD OVERLAID
US Dollar weakness accelerated further during Friday’s trading session as markets digested the latest consumer sentiment report. Largely fueled by concerns about the delta variant of covid, the headline consumer sentiment index plunged from 81.2 in July to 70.2 in August. That marks the seventh largest decline on record and leaves consumer sentiment at the lowest reading since 2011. Treasury bond yields tumbled in response and dragged the US Dollar along for the ride. The ten-year Treasury yield dropped a noteworthy 8-basis points, for example, to 1.28%.
That said, where the US Dollar heads next likely hinges on how Treasury yields react to the upcoming release of FOMC minutes and retail sales data. FOMC minutes from the July 27-28 Fed meeting, which ultimately tweaked “substantial further progress” language in the press statement, stands to provide some color on the Fed taper debate and whether or not central bank officials have any appetite for slowing asset purchases before year-end. Retail sales data, on the other hand, could shed light on the degree that deteriorating consumer sentiment has impacted spending habits.
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