Dollar rally comes to an end with markets reaching for an explanation
The dollar has seen a pullback over the weekend which has been attributed to a few different factors: the seizure of a US drone by Chinese authorities over the weekend, expected belligerent behaviour from Trump when he takes the Oval Office in January and even revisions to the Australian government deficit forecasts. The reality is, markets are heading into the quieter, low volume Christmas period and now the Federal Reserve’s rate decision last week has come and gone, markets are simply taking the opportunity to take some profits off the table from the strongest and most sustained dollar rally since 2008. Nonetheless, CFTC (a US market regulator) figures on Friday showed the market is still structurally long on the dollar, with long positions sitting at their highest level since January, which will prevent the dollar falling much further from here.
Markets to see under the bonnet of UK economic growth this week
The first half of this week’s calendar is suitably quiet this week, but UK GDP on Friday will allow us to look under the bonnet of Q3’s relatively strong 0.5% growth figure, with total business investment one of the components to look out for. While post-Brexit vote promises of investment from the likes of GlaxoSmithKline PLC (NYSE:GSK) and Japan’s Softbank Corp. (T:9984) will keep this figure falling too low anytime soon, it’ll certainly be a closely watched metric following the expected trigger of Article 50 in March next year.
Busy US data calendar, but markets unlikely to pay much attention
In the US, it is slightly busier with a lump of data finishing the week before Christmas: GDP, Durable Goods Orders and New Home Sales on Thursday and Friday. Despite this raft of data, markets will likely continue to overlook short-term focused monthly data releases in favour of the broader political and macroeconomic picture, with two rate hikes from the US now fully priced in for next year.
Finally, Japan’s rate decision on Tuesday will be eyed for any commentary on the persistently weakening yen. It’s unlikely we’ll see any hints of further policy action as they’re likely content to allow their currency to depreciate further, but reports last week that they could be considering higher interest rates while targeting the domestic yield curve could garner more attention if commented on tomorrow.