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At the end of what's been a quiet week on the economic calendar, FX markets finally have meaningful data due out from the world's largest economy. The US Dollar could actually benefit from a higher volume of data releases, as market participants are desperate to find any sign of information that the US economy isn't a listless as it appears.
Chart 1: DXY Index Daily Timeframe (May 2016 to July 2017)
After all, coming into this week, US economic data momentum was at its weakest level in six years, according to the US Citi Economic Surprise Index. Fortunately, data due out this morning speak to two of the most watched data series: consumption and inflation.
Consumption is the most important part of the US economy, generating nearly 70% of the headline GDP figure. The best monthly insight we have into consumption trends in the US might arguably be the Advance Retail Sales report. In June, consumption increased slightly, according to a Bloomberg News survey, with the headline Advance Retail Sales set to increase by +0.1% (m/m). The Retail Sales Control Group, the input used to calculate GDP, is due in at +0.3% from 0.0% (m/m). Investors continue to wait and see if the strongest confidence readings since 2000 translate into real economic activity.
According to a Bloomberg News survey, US consumer prices were barely higher on a monthly-basis in June, due in at +0.1% from -0.1% (m/m) and +1.7% from +1.9% (y/y). The core readings should be similar, at +0.2% from +0.1% (m/m), and at +1.7% unch (y/y). These figures aggregately have pulled back from the Fed’s +2.0% medium-term target, and represent the biggest obstacle to the Fed following through on its plan to raise rates one more time before the year is over. Any impact on the US Dollar will be vis-à-vis the glide path pricing channel.
--- Written by Christopher Vecchio, Senior Currency Strategist
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