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Intraday US Dollar Rally Hits Pause as US Consumer Confidence Dives

Intraday US Dollar Rally Hits Pause as US Consumer Confidence Dives

Christopher Vecchio, CFA, Omar Habib,

Talking Points:

- Like the October US UMich Sentiment Index , the October Conference Board’s Consumer Confidence Index fell.

- Q3’16 Personal Consumption Expenditure growth is expected to be significantly weaker than in Q2’16.

- The US Dollar’s intraday weakened slightly amid an overall limited market reaction.

Earlier today, the Conference Board’s US Consumer Confidence Index for October showed a decline from previous reading of 103.5 to 98.6, missing expectations of 101.5. While a big miss, the reading was not necessarily a surprise; two weeks ago, the University of Michigan Consumer Sentiment Index showed a weak read of 87.9 versus 91.2 in September; producing the weakest reading since September 2015. Similarly, today’s report showed the fastest decline in confidence since November 2015.

The components of the headline index were decidedly mixed. It appears consumers remain optimistic about the present, but are growing more concerned about the future of the US economy – perhaps fatigue from the contentious US Presidential election cycle. According to the Conference Board, the Present Situation Index decreased from 127.9 to 120.6, while the Expectations Index declined from 87.2 last month to 83.9.

This weakening in Consumer Confidence may be a negative signal for the US economic growth; a strong consumer is a vital component of a strong US economy. Consumption is approximately 70% of US Gross Domestic Product and has been the primary driver of US GDP this year, especially in Q2’16. While the headline reading for Q2’16 GDP was only +1.4% annualized, Personal Consumption Expenditures grew by +4.3% annualized; consumer strength kept GDP above water, which had been restrained by cutbacks in government spending and private investment.

The first reading for Q3’16 US GDP is due this Friday at 12:30 GMT, with consensus forecasts calling for a headline reading of +2.5% versus the prior rate of +1.4% annualized. This time however, PCE growth is expected at only +2.6%, versus the +4.3% annualized in Q2’16.

See the DailyFX economic calendar for Tuesday, October 25, 2016

Chart 1: USD Index 1-minute Chart: October 25, 2016 Intraday

Intraday US Dollar Rally Hits Pause as US Consumer Confidence Dives

The US Dollar (via DXY Index) had a relatively muted reaction around the data, easing away from its session highs at 99.09. However, with US Dollar strength burgeoning the past few days, the weak sentiment readings – especially when viewed in context of the US elections – may be only a reason for the intraday greenback rally to pause, not turnaround.

Read more: USD/JPY Breakout Attempt Foreshadowing ’Risk’ Rally?

--- Written by Christopher Vecchio, Currency Analyst and Omar Habib, DailyFX Research

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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