eur fundamentals

US Dollar Strengthens Further - US Retail Sales Forecasted to Contract for Sixth Straight Month

Tuesday, 13 January 2009 20:31:29 GMT  |  Terri Belkas, Currency Strategist

The US dollar remained strong across the majors as risk aversion remained in play following a speech by Federal Reserve Chairman Ben Bernanke. The bulk of Chairman Bernanke’s speech focused on the causes of the financial crisis, the Federal Reserve’s policy responses, and the differences between the Federal Reserve’s credit easing efforts and the Bank of Japan’s quantitative easing efforts between March 2001 and March 2006, which have been widely deemed unsuccessful. Looking forward, Chairman Bernanke said that if President-elect Barack Obama does indeed implement a large fiscal stimulus package, it is likely to provide a “significant boost” for the economy, but in order to promote a long-lasting recovery the plan must include measures to “further stabilize and strengthen the financial system.” Additional assistance may be needed in the form of more capital injections, guarantees, and efforts to remove toxic assets off the books of financial institutions, which happens to be the original intention for the Troubled Asset Relief Program (TARP). Of course, such efforts will not be readily accepted by the public, and Mr. Bernanke urged politicians to convince their constituents that financial stabilization is necessary for economic recovery.

Looking ahead to Wednesday, the Commerce Department is forecasted to report that US retail sales fell negative for the sixth straight month in December. This is particularly negative because the holiday shopping season is supposed to be a boon for retailers, but even the most aggressive discounting wasn’t able to offset the impact of a deteriorating labor market, tighter credit conditions, and a year-long recession. More specifically, advance retail sales are anticipated to have contracted 1.2 percent during the month, and excluding auto sales are expected to have slumped 1.3 percent. We’ve already heard disappointing results from a variety of sources, including Mastercard’s SpendingPulse survey, which showed that holiday spending tumbled 4 percent in December from a year earlier (excluding gasoline). As a result, another contraction in advance retail sales is likely, and these may mark a rather consistent trend through the first half of 2009 as well. As we saw with US non-farm payrolls, the impact of a disappointing result may be limited, as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further.

Related Articles: US Trade Deficit Narrows to Lowest Level Since 2003, Top 5 Market Movers for the Week of January 11


**For a full list of upcoming event risk and past releases, go to the DailyFX Calendar

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars