US Dollar Rallying Post FOMC as Economic Data Proves More Influential

Perhaps some may be scratching their heads this morning with the USD reaction being broadly positive following an FOMC statement which showed barely any change at all from the previous one, and remained on the dovish side. However, we would attribute the latest USD rebound to the fact that the FOMC statement was pretty much priced in to the markets, leaving global macro investors to focus more on actual US economic data results. Clearly at this point Fed policy has nowhere to go but up (whenever that may be) and the X factor remains the recovery of the US economy as reflected by key economic data. Lately, data has been quite positive, and Tuesday’s showing was extremely USD positive, with solid consumer spending, and a rise in producer prices. 

Wednesday’s economic data therefore becomes rather important with another series of key releases including; November CPI, industrial production, Empire State manufacturing, home builders, and TIC data. Should the net result of these releases come in on the better side of expectation, we could continue to see additional broad based USD buying on a rising expectation that the US economy is indeed starting to really show healthy signs of recovery.

Meanwhile, with the buck starting to gain some momentum, we would not at all be surprised to see the focus once again shift back to ongoing Eurozone debt concerns and potential threat of contagion. Clearly, there are still some major issues yet to be resolved, and with Belgian woes now creeping into the headlines, the threat of a spread becomes all the more real.

Economic data released thus far on the day includes a Japanese Tankan with a downbeat outlook albeit slightly better than expected, mixed Australian results, in the form of an improved consumer confidence reading and on the whole weaker motor vehicle sales, and softer New Zealand consumer confidence. The divergence in Australian and New Zealand economic data and prospective outlooks continues to drive the Aud/Nzd cross to fresh decade highs, with the market now trading by1.3300. It is worth noting however that daily studies are showing overbought, with the market due for some form of corrective relief.

Looking ahead, attention shifts to the UK, where unemployment data (-3.0k jobless claims change expected) is set for release at 9:30GMT. These numbers will take on an added significance with the Pound standing out as a gross underperformer in recent trade. Swiss ZEW and Eurozone unemployment then follow at 10:00GMT, with UK CBI reported sales (38 expected) capping things off for the European session at 11:00GMT. US equity futures and commodities prices are tracking moderately lower in early Wednesday trade.