The US dollar has fallen by 11.50% since its late-September high and the greenback may fall further as multi-month support comes under pressure. US dollar bulls have had a hard time of late as the greenback continues to give back a large slice of last years gains. The greenback was pressured by the release of a series of highly disappointing United States economic reports in the New York session.
That was as well as the policy direction of several other central banks that are likely to be more hawkish. Consumption & Production Sags, Layoffs Increasingly Rampant.
The United States retail sales posted a sharp fall of -1.1% for month over month type in December 2022. The November data for the period was also revised down.
It was from -0.6% to -1.0%. All of which signals a slump in public spending interest amid rising interest rates over the past year. Subsequent reports were no less disappointing.
PPI is Under the Estimation
The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. Producer inflation (PPI) was recorded at -0.5%. Again, it was for Month-over-Month, or well below the consensus estimate pegged at -0.1% only.
Manufacturing production data subsided to -1.3% for month over month too in the same time span. The American industrial production data also fell for the third time at the end of last year. The data recorded a decline of -0.7% for month over month type in December 2022. That was still happened even though consensus expects a limited improvement to -0.1% from -0.6% in November.
Coming out after the retail sales report, the industrial production data reinforces the message that a recession is approaching and we're even likely already experiencing it.
USD/JPY Weakens, GBP/USD Shows Off
The statement above was said by James Knightley, a chief international economist at ING. Note Microsoft's announcement of layoffs of 10 thousand employees this morning.
It was nearly 5% of its workforce. Remember that employment is always the last thing to turn around in one economic cycle because labor data is an indicator of lagging.
The depreciation of the US dollar coincided with the strengthening of several major rival currencies. The yen remains buoyed by more hawkish market expectations.
That was although Japan's central bank continues to try to quell speculation surrounding its policy changes. USD/JPY briefly soared to a high of 131.58 in the Asian session, but then plummeted to the 128.30s as it entered the New York session.
EUR/USD Position is Still High
The EUR/USD pair trades at around 1.0830, unchanged from its Mondays opening as investors await a fresh catalyst. Growth-related figures and the US Q4 Gross Domestic Product to bring answers next week. The reason is that the majority of market participants still hope that ECB President Christine Lagarde will realize her rhetoric about raising interest rates by 50 basis points next month.
Somewhere, the GBP/USD skyrocketed to a one-month high. The latest UK inflation data showed a slight decline, but core inflation still held at high levels and exceeded market estimates.
Conversely, the market is increasingly confident that the British central bank (BoE) will raise interest rates by as much as 50 basis points in the near future.
BOE may not Halt Rate Hikes
A small drop in CPI inflation and unchanged core inflation signals it's too early for the BoE to declare victory in its battle against inflation. This was said by Ruth Gregory, a senior UK economist at Capital Economics.
With the recent base inflation, activity and payroll growth ending last year slightly stronger than expectations. The analysts doubt BoE will halt rate hikes.
The yen exchange rate has strengthened rapidly since the end of last year, as market participants expect the Japanese central bank (BoJ) to change its policy direction to be tighter as inflation rises.
Regrettably, those hopes were wiped out after the announcement of the results of the BoJ's policy meeting yesterday. Instead of being more hawkish, the BoJ is adding new ammunition to enforce its loose monetary policy.
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