Ms. USA (how we call the US dollar at Invest Diva) continued to get hit by stormy and negative data in past couple of month, all of which ended up pushing her down on the forex dance floor against many of her major counterparts. Let’s take a look at most recent economic releases, and how they may have changed the course of the US economy. Is the U.S. ready for the first rate hike in 9 years?!
1- CPI fell 0.2% in Sept vs expected
U.S. consumer prices recorded their biggest drop in eight months in September as the cost of gasoline fell, but a steady pick-up in underlying price pressures should allay fears that a disinflationary trend was reasserting itself.
The Labor Department said on Thursday its Consumer Price Index fell 0.2 percent last month after slipping 0.1 percent in August. In the 12 months through September, the CPI was unchanged for the first time in four months after rising 0.2 percent in August.
But since the drop met the expectations, market participants took this as a positive signal.
2- Jobless claims fell to lowest level since 1973
This is definitely good news for Ms. USA! The number of Americans submitting applications for unemployment benefits unexpectedly declined last week to match the fewest in four decades.
senior U.S. economist at Societe Generale in New York told Bloomberg that these numbers are pretty impressive. “Both the initial and continuing claims numbers are consistent with the fact that we have a labor market that’s fairly tight and continues to improve,” he said.
So Why the heck did the US dollar decline on Thursday? This must have had to do with the next point I’m about to tell you about.
3- Manufacturing gauges showed slowing
Two regional manufacturing gauges (Philly Fed and Empire State) painted an identical picture in October with both showing a sharp slowing in the industrial sector in the Northeast.
The Empire State manufacturing index, which measures conditions in the New York area, stayed in deep negative territory for the third month in a row for the first time since the depths of the Great Recession. The Philadelphia Fed’s manufacturing index remained in negative territory for the second straight month.
This could have been an effect due to the rising US dollar in the past year, because a strong dollar makes products less competitive in the global market. Keep in mind that this gauge is based on a survey from manufacturers in the past month, so the recent declines in the USD have not been put into effect for today’s reading. However one could argue that effects of the strong dollar in 2014 is still weighing on the manufacturing sector.
US Economy Summary
To sum it up, the US economy has been showing mixed signals in the past few months and an October interest rate hike has therefore almost certainly fallen off the table. The majority of analysts are expecting the first rate hike in 9 years to get delayed well into March 2016. In the mean time, we could see a relief in the US dollar strength for the remaining of the year.
By Kiana Danial