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Dollar at Risk as All Eyes Turn to FOMC Minutes To Gauge QE Potential
Written by article default Monday, 11 October 2010 08:23
The FOMC minutes may set the tone for short-term price action, if they reveal that policy makers took steps toward additional stimulus measures. The dollar has been battered with expectations of more QE, and market participants will scrutinize the comments and vote to determine the likelihood that action will come at the next meeting. Consumer spending figures form the world’s largest economy and New Zealand are also potential market movers. Meanwhile, the British pound could experience considerable volatility with labor and inflation reports crossing the wires this week.* U.K. Consumer Price Index (SEP) – Oct 12– 08:30 GMT
Inflation in the U.K. is expected to remain at 3.1% as prices remain sticky with the economy continuing to show signs of recovery. Price growth above the MPC’s 3.0% threshold will be a discouraging factor when policy makers debate the potential for additional stimulus. Accelerating consumer prices will bolster voting member Andrew Sentence’s case for a rate hike, potentially providing sterling support. A slower pace of inflation validates the majority’s contention that prices will fall back toward the 2.0% target level- opening the door for QE and potentially sinking the pound. Join a DailyFX analyst for livecoverage of event.
* FOMC Meeting Minutes – Oct 12– 18:00 GMT
The potential for quantitative easing from the Fed is the biggest driver in the market, as it has sunk the dollar. The central bank stated at their last meeting that they stand ready to take any actions needed to bolster the fragile economy. Policy makers have expressed concern over the potential for deflation and if the tally shows that the committee is moving toward additional measures, further greenback weakness could follow. Conversely, signs that policy makers are content with standing pat over the short-term could spark a dollar rally as market price out the expected QE.
* U.K. Jobless Claims Change (SEP) – Oct 13 – 08:30 GMT
U.K. jobless claims are forecasted to have risen for a consecutive month, warning that the economic recovery is slowing. A weakening labor market would support the BoE’s contention that there is considerable slack in the economy which will ultimately bring prices in line. Slowing inflation will negate the need for a rate hike and provide policy makers the freedom to add to their stimulus efforts.
* New Zealand Retail Sales (AUG) – Oct 13 – 21:45 GMT
The New Zealand economy is developing chinks in its armor as demand for exports begins to slow. Policy makers were forced to pause their tightening cycle as downside risks for growth increased. Strong domestic spending may offset weakening demand from abroad, putting upward pressures on prices. Retail sales in August are forecasted to have improved by0.3% in August, but following last month’s contraction, may not be enough to move markets. Regardless, an improving domestic picture will keep the current outlook for more tightening over the next year. Join a DailyFX analyst for live coverage of event.
* U.S. Advance Retail Sales (SEP) – Oct 15 – 12:30 GMT
U.S. consumer spending is forecasted to have improved for a third straight month in September as deep discounts continue to lure shoppers. A weak labor markets has kept Americans from completely opening their wallets, but comfort that the recovery is sustaining is providing enough confidence to generate selective buying. The event could be meaningless if the FOMC signals more stimulus efforts are ahead. However, an ambiguous central bank will place the focus on fundamentals with advance retail sales one of the most important. Signs of domestic growth could generate dollar support and add fuel to any exiting rally.
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