After Trump’s Win, Economic Data and Fed’s Rate Hike Under The Spotlight

After a historic week with Donald Trump’s unexpected victory in the U.S. presidential election, markets may refocus on economic data and any signs from the Federal Reserve that the U.S. interest rates will be increased in December.

The greenback has had an unforgettable Wednesday last week when it dropped strongly throughout the vote count process which pointed to a lead of the Republican Party nominee. However, the currency soon reclaimed its lost strength in the wake of President-elect Trump’s plans to end the country’s years of fiscal austerity.

The dollar hit its highest levels in nine months against a basket of the other major currencies on Friday, amid mounting expectations for a December rate hike. For the week, the U.S. dollar index advanced more than 2.0%, boosted by hopes that increased fiscal spending and tax cuts under a Trump administration will bolster economic growth and inflation, which in turn will prompt the Fed to tighten borrowing costs.

On Friday, Vice Chair Fischer said the central bank was close to achieving its two goals with the case of a hike relatively strong. Indeed, while the U.S. economy is close to full employment, with the jobless rate below 5%, Trump’s election promise to cut taxes and improve infrastructure could provide a big boost to both growth and inflation.

According to the CME Group’s Fed Watch Tool, investors are currently pricing an 82% chance of a rate hike at the Fed’s final meeting of this year.

Official U.S. data on Thursday will likely show consumer price index inflation picked up slightly last month, up 0.4 percent on the month and 1.6 percent on the same month last year. Core inflation, which strips out food and energy, is expected to hit 2.2 percent.

In the week ahead, investors will be looking to a number of the U.S. economic indicators including retail sales and so-called core retail sales on Tuesday, Producer Price Index and Industrial Production on Wednesday, and Building Permits and Consumer Price Index on Thursday. However, the focus next week will be on congressional testimony by Fed Chair Janet Yellen on Thursday before the Joint Economic Committee. Fresh indications on whether interest rates will rise next month will be closely watched.

Sterling closed higher for the second consecutive week, rising nearly 600 pips against the U.S. dollar since its lows in late October. The Cable has enjoyed a steady rise thanks to short covering, rising gilt yields and fading concerns about the U.K. economy post Brexit.

British Prime Minister Theresa May on Thursday called President-elect Donald Trump to congratulate him on his “hard-fought election campaign and victory.” According to the statement, May highlighted her intention to strengthen investment and bilateral trade with the U.S. in light of Brexit. She also noted that Britain and the U.S. “have always stood together as close allies.”

Mr. Trump, in turn, “strongly agreed” with this claim, saying the United Kingdom is “a very, very special place for me and our country” and invited Ms. May to visit him as soon as possible after he takes office in January.

Sterling will be in focus with data on CPI and Inflation Report Hearings on Tuesday, reports on employment on Wednesday and Retail Sales on Thursday along with speeches from Bank of England Governor Mark Carney, Deputy Governor Nemat Shafik and newly appointed member of the BOE’s Monetary Policy Committee Michael Saunders.

In contrast to the Pound’s rally, the euro dropped to its lowest level since January on Friday, as U.S. dollar continuing to power higher. Most of next week’s Eurozone economic reports are second-tier, except for preliminary estimates of third quarter growth on Tuesday. The ECB President Mario Draghi will speak on Monday and Friday. His views will be market moving.

Among commodity currencies, the New Zealand dollar fell deepest since the Reserve Bank of New Zealand cut interest rates to a fresh record low on Thursday. The central bank said that it didn’t feel it’s necessary to cut rates again, but left the door for further stimulus open, saying “numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”

In the coming week, investors will be eagerly waiting for reports on New Zealand’s retail sales and inflation numbers.

The Australian dollar was driven by commodity prices in the past week. The Aussie hit seven-month highs at 0.77771 against the U.S. dollar, boosted by the rally in copper and iron ore prices. However, the pair failed to sustain its bullish sentiment and fell off to one-month lows at 0.75246. The RBA minutes published on Tuesday and Australian employment reports due on Thursday are the main focus next week.

No major economic reports were released from Canada last week; therefore, the currency was driven by the movement of the U.S. dollar and the oil prices. With oil stumbling and Trump’s shock win which puts the North American Free Trade Agreement at risk, the Canadian dollar dropped to the lowest since late February on Friday. In the week ahead, the Statistics Canada will report about manufacturing sales for October on Wednesday, and consumer prices for the same month on Friday.

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