USD Looking Heavy These Days - Yield Advantage Slipping
We note a heavy USD tone this morning - much the same as we saw yesterday when the leading EUR/USD rate the 1.1600 again. We looking to be making yet another attempt on this level this morning, with sellers not giving up, but the signs are that USD bulls are going to have a tough time of it this time around.
Last night, the latest US budget figures showed that the deficit had widened out by 30% over the last year and we must not forget, that at the start of the year, this along with the trade deficit was the reason the USD was under pressure as much as it was, with the DXY (USD index) falling into the mid 88.00's at the time. Here we are now at 95.00, having seen highs around 97.00 in the summer, and there is a battle going on as buyers are still pointing to the clear interest rate differentials favouring the greenback.
However, we also have the US midterm elections at the start of November and this event risk is also expected to take the shine off the USD despite another rate hike expected at the FOMC meeting in Dec.
More recently, the retail sales figures released yesterday were far from encouraging in the headline, coming in at just 0.1% vs 0.7% expected. Stripping out autos, gas and construction materials, the data was a little better, showing consumers are still spending, though this will be tempered by the fact that the US administration provided tax cuts at the start of the year, and this will fizzle out at some point.
US industrial and manufacturing production stats are due out this afternoon, though it seems the writing is on the wall, so we will have to see a strong number if this USD push (lower) is to ease off.