Week Ahead in FX: Fed Rate Hike on Track Awaiting FOMC Minutes and US Inflation

December Rate Hike Barely Clears US Retail Sales Hurdle

The USD rally received a temporary setback this morning with the release of the U.S. retail sales data. American retail sales edged up 0.1 percent missing the expectations of a 0.3 percent rise. Auto sales were to blame as they had a significant drop. Core retail sales data that excludes auto fared only slightly better as it came in at 0.2 percent when 0.4 percent has been forecasted. The consumer spending economic indicator did not post a shocking data point although it was expected higher. The USD did retreat across the board after the retail sales figures were announced, but it made back all the lost ground minutes after as the path to the December interest rate hike looks clear. The next hurdle ahead will be American inflation data and the notes from the October Federal Open Market Committee (FOMC) meeting.

The U.S. Consumer Price Index (CPI) will be released on Tuesday, November 17 at 8:30 am EST. Although various Fed members have talked down role of inflation in the December rate decision a negative CPI or core CPI could raise questions ahead of a change in monetary policy. The FOMC minutes will be published on Wednesday, November 18 at 2:00 pm EST. The October FOMC had no press conference afterwards so a lot of doubts remain on what exactly did the Fed discuss before issuing a statement that paved the way for a December rate hike.

Sunday, November 15
4:45pm NZD Retail Sales q/q
6:50 pm JPY Prelim GDP q/q
Monday, November 16
5:15am EUR ECB President Draghi Speaks
8:30 am CAD Manufacturing Sales m/m
7:30 pm AUD Monetary Policy Meeting Minutes
9:00 pm NZD Inflation Expectations q/q
Tuesday, November 17
4:30 am GBP CPI y/y
5:00 am EUR German ZEW Economic Sentiment
8:30 am USD CPI m/m
8:30 am USD Core CPI m/m
Tentative NZD GDT Price Index
Wednesday, November 18
8:30 am USD Building Permits
2:00 pm USD FOMC Meeting Minutes
Tentative JPY Monetary Policy Statement
Thursday, November 19
Tentative JPY BOJ Press Conference
4:30 am GBP Retail Sales m/m
8:30 am USD Unemployment Claims
10:00 am USD Philly Fed Manufacturing Index
Friday, November 20
3:00 am EUR ECB President Draghi Speaks
8:30 am CAD Core CPI m/m
8:30 am CAD Core Retail Sales m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

US CPI and Core CPI Expected at 0.2%

Last month the CPI fell by –0.2 percent as the price of energy and food were trending downward. Core CPI that remove those volatile products gained by 0.2 percent slightly ahead of the anticipated 0.1 percent. The forecasts call for a rise in both CPI and core CPI measure at 0.2 percent. The rise will keep inflation in the U.S. at a pace of 1.8 percent in the year with little evidence of inflationary pressures as energy prices continue to suffer from over supply as evidenced by the queue of oil tankers full of crude awaiting to unload even as the OPEC is pumping at record pace.

Inflation events to watch next week:

Tuesday, November 17
4:30 am GBP CPI y/y
5:00 am EUR German ZEW Economic Sentiment
8:30 am USD CPI m/m
8:30 am USD Core CPI m/m

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Fed Minutes to Disclose FOMC Member Arguments

After standing pat for the June and September FOMC meetings, the market was not expecting the Fed to include an announcement of higher rates in the U.S. after more than 10 years in their October statement. The fact that the meeting would not be followed by a press conference had always reduced the probability of such a major decision being announced. If the Fed had shown so much patience before, why rush of all of a sudden?

What the Federal Reserve did introduce was a very strong signal that the next FOMC meeting would be a good time to discuss said rate hike. The next FOMC meeting takes place on December 15 and 16. Without Chair Yellen addressing the questions from members of the financial press, there are a lot of uncertainty on what FOMC members discussed. Two weeks after the meeting the minutes will be released and the market will be going line by line looking for clues as to where voters stand ahead of the December meeting. In October there was only one voter in dissent of keeping the rate unchanged. Richmond Federal Reserve President Jeffrey Lacker has dissented in the past two consecutive monetary policy meetings.

Fed members have been for the most hawkish in the press, but so far they have kept a unified front around Chair Janet Yellen. This serves to give the Federal Reserve some credibility as consensus sends a message of confidence, but there is a communication disconnect as members talk hawk, but deliver dovish votes. This could all change with the December FOMC meeting and the much awaited interest rate hike before the end of the year.

Federal Reserve events to watch this week:

Wednesday, November 18
2:00 pm USD FOMC Meeting Minutes

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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