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USD Downtrend Paused as Consumer Confidence Jumps to 18-Year High

USD Downtrend Paused as Consumer Confidence Jumps to 18-Year High

Peter Hanks, Strategist

Talking Points:

  • Consumer confidence in August was 133.4 versus 126.6 expected and 127.9 last month
  • The reading is the highest since October 2000 and bucks the recent decline in confidence
  • Such a surprise produced a larger dollar reaction than recent releases of consumer confidence readings

Join our analysts during their Live Webinars. They can offer insight on economic indicators like today's surprise rise in consumer confidence.

Consumer Confidence Climbs to New Heights

August’s survey of consumer confidence delivered a substantial beat Tuesday morning, stalling a dollar downtrend. The headline figure came in at 133.4, the highest level since October of 2000. The reading is higher than the forecasted 126.6 and last month’s 127.9. As a decline was forecasted, any surprise to the upside would have been notable but such a gap higher was enough to have a palpable impact on the dollar basket.

The index saw gains from a few sectors of the survey, but most notably: expectations of business conditions, plans to buy in the next six months, and present conditions. Expectations of business conditions for the next six months saw 24.3% of respondents envision “better” conditions, up from 22.9%. Similarly, respondents who expect increased income climbed to 25.5% from 20.4%. The income expectations fall in-line with recent reports of wage growth across the country. Therefore, respondent’s plans to buy appliances over the next six months is understandable. In particular, plans to buy large appliances jumped to 53.1% from 47.8%. The figure is surprising given the recent concern from manufactures regarding the cost of steel and aluminum.

Despite the increased costs, consumers seem to be willing to make big-ticket purchases. This may in-part be from the decline in inflation expectations. Last month, 5.0% inflation was expected over the next 12-months while this month’s survey reported 4.8%.

S&P 500 Price Chart 5-Minute Time Frame, August 28

USD Downtrend Paused as Consumer Confidence Jumps to 18-Year High

August Continues to Impress

Although August is considered to be the height of the summer doldrums, equities continue to produce impressive results. Similarly, the strong consumer confidence reading was enough to stall a downtrend in the dollar basket, allowing bulls to take over momentarily in the morning hours. DXY climbed from roughly 94.02 to 94.20. While still quite small, the impact is larger than recent consumer confidence related moves and the reading will likely weigh on investor's perception of the US economy.

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

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

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