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The Weekly Wrap: FED Monetary Policy Delivered for the Dollar Bulls in Delayed Fashion

The Stats

It was a particularly busy week on the economic calendar, in the week ending 17th December.

A total of 87 stats were monitored, which was down from 48 stats in the week prior. Away from the stats, monetary policy was also in focus, with the FED, the ECB, the BoE, and the BoJ in action.

Of the 87 stats, 33 came in ahead forecasts, with 44 economic indicators coming up short of forecasts. There were 10 stats that were in line with forecasts in the week.

Looking at the numbers, 32 of the stats reflected an upward trend from previous figures. Of the remaining 55 stats, 52 reflected a deterioration from previous.

For the Greenback, the upward trend resumed as the markets responded to the FED’s projections on rate hikes. A 0.67% rally on Friday delivered a 7th weekly gain in 8-weeks for the Dollar. In the week ending 17th December, the Dollar Spot Index rose by 0.60% to 96.672. In the previous week, the Dollar had fallen by 0.02% to 96.097.

Out of the U.S

Early in the week, wholesale inflation and retail sales figures drew plenty of interest. A further pickup in wholesale inflationary pressures and softer than expected consumer spending tested support for riskier assets.

In November, the U.S core annual rate of wholesale inflation accelerated from 7.0% to 7.7%.

Core retail sales rose by just 0.3%, however, following a 1.8% increase in October. Economists had forecast a 0.9% rise.

On Thursday, jobless claims and private sector PMIs were also in focus along with industrial production.

In the week ending 10th December, initial jobless claims rose from 188k to 206k. There were also modest declines in the private sector PMIs for December. The all-important Services PMI slipped from 58.0 to 57.5.

While industrial production rose by a further 0.5% in November, after having risen by 1.7% in October, Philly FED data disappointed. In December, the Philly FED Manufacturing Index slid from 39.0 to 15.4.

Ultimately, however, it was the FOMC monetary policy decision and economic projections that moved the markets.

In line with expectations, the FED announced a faster end to the asset purchasing program and projected 3 rate hikes for next year This was up by just 1 rate hike from the September projections. While hawkish, interest rates for Q4 2022 were projected to sit at just 0.9%, supporting demand for riskier assets.

Out of the UK

It was a busy week. On the economic data front, employment, inflation, and retail sales were in focus.

Another large rise in employment supported a fall in the unemployment rate from 4.3% to 4.2% in October. The downward trend is expected to continue in November, with claimant counts having declined by 49.8k in November.

Inflationary pressures continued to pick up, however, with the UK’s annual rate of inflation accelerating from 4.2% to 5.1%.

Private sector PMIs were skewed to the negative. According to prelim figures, the UK’s services PMI fell from 58.5 to 53.2 in December. This was largely anticipated, with the upward trend in new COVID-19 cases.

At the end of the week, retail sales figures were impressive, with retail sales up 1.4% in the month of November. Core retail sales rose by 1.1%, both coming in ahead of forecasted increases of 0.8%. Year-on-year, core retail sales were up 2.7% after having been down by 2.1% in October.

While the stats drew plenty of interest, the BoE delivered an unexpected rate hike on Thursday, driving the Pound back to $1.33 levels.

In the week, the Pound fell by 0.21% to end the week at $1.3245 In the week prior, the Pound had risen by 0.28% to $1.3273.

The FTSE100 ended the week down by 0.30% following a 2.38% gain from the previous week.

Out of the Eurozone

Early in the week, member state finalized inflation and Eurozone industrial production figures were in focus.

Finalized numbers affirmed a further increase in consumer prices across France, Italy, and Spain.

Industrial production figures for the Eurozone were also positive, with production up 1.1% in October.

In the 2nd half of the week, prelim private sector PMI numbers for France, Germany, and the Eurozone were key, however.

An increase in Germany’s manufacturing PMI from 57.4 to 57.9 was the only highlight. In December, the Eurozone’s composite PMI fell from 55.4 to 53.4, with a contraction in Germany’s service sector contributing.

German business sentiment and finalized Eurozone inflation figures wrapped things up. While the inflation figures further affirmed the upward trend in consumer prices, business sentiment waned.

For December, the Ifo Business Climate Index fell from 96.5 to 94.7.

On the inflation front, the Eurozone’s annual rate of inflation accelerated from 4.1% to 4.9% in November, which was in line with prelim figures.

Other stats included wage growth and trade data for the Eurozone that had a muted impact on the markets.

On the monetary policy front, the ECB was also in action, delivering a more dovish stance on policy. While announcing an end to net asset purchases by March 2022, there were no other changes, with the ECB continuing to deliver assures of continued policy support.

For the week, the EUR fell by 0.65% to $1.1240. In the week prior, the EUR had also slipped by 0.02% to $1.1313.

The CAC40 fell by 0.93%, with the DAX30 and the EuroStoxx600 ending the week with losses of 0.59% and 0.31% respectively.

For the Loonie

November inflation figures were the key stats of the week, with the numbers skewed to the negative.

Canada’s annual rate of core inflation softened from 3.8% to 3.6% in November. Core consumer prices stalled in the month after having risen by 0.6% in October.

Other stats included manufacturing sales and wholesale sales figures that had a muted impact on the Loonie.

In the week ending 17th December, the Loonie slid by 1.31% to C$1.2889 against the Greenback. In the week prior, the Loonie had risen by 0.94% to C$1.2722.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar fell by 0.66% to $0.7125, with the Kiwi Dollar declining by 0.84% to end the week at $0.6739.

For the Aussie Dollar

Economic data included business and consumer confidence figures along with employment numbers for November.

While both business and consumer sentiment waned, a sharp rise in hiring supported the Aussie Dollar before a Friday sell-off.

In November, employment surged by 366.1k, leading to a fall in the unemployment rate from 5.2% to 4.6%.

For the Kiwi Dollar

It was a quiet week, with GDP and business confidence in focus.

The stats were skewed to the negative.

In the 3rd quarter, the New Zealand economy contracted by 3.7% as a result of lockdown measures. Business confidence took another hit in December, falling from -16.4 to -23.2.

The numbers were not enough to send the Kiwi Dollar into the deep red, however.

For the Japanese Yen

At the start of the week, 4th quarter Tankan numbers provided some comfort. The Large Manufacturers Index held steady at 18 versus a forecasted 19, with the Large Non-Manufacturers Index climbing from 2 to 9.

In the second half of the week, however, the stats were skewed to the negative.

Japan’s trade deficit widened from ¥68.5bn to ¥954.8bn. While negative, both exports and imports were on the rise, year-on-year, with a marked increase in imports contributing to the widening.

Private sector PMIs did disappoint, however. The Manufacturing PMI fell from 54.5 to 54.2, with the services PMI falling from 53.0 to 51.1.

At the end of the week, there were no surprises, with the BoJ standing pat on the monetary policy front.

The Japanese Yen fell by 0.25% to ¥113.720 against the U.S Dollar. In the week prior, the Yen had fallen by 0.57% to ¥113.440.

Out of China

It was also a mixed week on the economic data front.

In November, China industrial production rose by 3.8% year-on-year, which was up from an October 3.5%. Retail sales disappointed, however. After having been up 4.9% in October, retail sales increased by just 3.9% year-on-year in November.

Fixed asset investments also saw a more modest increase. In November, fixed asset investment rose by 5.2% year-on-year versus 6.1% in October.

In the week ending 17th December, the Chinese Yuan declined by 0.08% to CNY6.3754. In the week prior, the Yuan had ended the week up by 0.10% to CNY6.3700.

The Hang Seng Index slid by 3.35%, with the CSI300 falling by 1.99%.