U.S. retail sales and industrial production soar amid renewed concerns in Europe
The U.S. dollar climbs as strong economic data continues to bolster market sentiment regarding America’s economic recovery.
Positive economic data in the U.S.
Economic data coming out of the U.S. this past week signaled to markets that the country continues its path towards economic growth. Sales at retail stores, online sellers, and restaurants rose by a seasonally adjusted 1.7% in October compared to the previous month. The increased spending levels were driven by excess savings that households have accrued since the start of the pandemic, a low interest rate environment, and recent improvements in the job market. Market watchers, such as J.P. Morgan, have gone as far as to raise their expectations for fourth-quarter U.S. GDP to 5% from 4%.
U.S. industrial production also rose by 1.6% in October after September’s decline of 1.3%. A large part of October’s gain was due to recovery from the effects of Hurricane Ida, which disrupted oil and gas production. Additionally, improvements in the supply chain shortage of semiconductors enabled automakers to increase production of motor vehicles and parts. Currency markets reflected the renewed optimism as the greenback continued to strengthen this past week, rising to its highest level since the beginning of the year. However, the market will continue to monitor the impact of supply chain bottlenecks and inflation over the upcoming weeks.
Concerns in Europe
Across the pond, the rise in Covid-19 cases in Europe has led to renewed concerns regarding the pandemic as Austria announced a 10-day nationwide lockdown on Friday. ECB President, Christine Lagarde, also commented at a conference late last week that “the conditions to raise rates are very unlikely to be satisfied next year.” The ECB’s dovish stance posed a stark contrast to recent statements from the U.S. Federal Reserve and the Bank of England, where there have been talks of future rate increases. The ECB’s conflicting view on monetary policy and resurgence of Covid-19 cases weighed down on the EUR, causing it to slide to 1.1288 at the end of Friday’s trading session — the lowest level the EUR has seen this year.
(Related insight: Read "Six key steps to implementing an operational FX program")
The week ahead
Manufacturing and Services PMI surveys for the Eurozone and Germany will come out on Tuesday, which investors will be looking at to gauge economic recovery in Europe. Wednesday will be a data heavy day for the U.S. as we expect durable goods, third-quarter GDP, and PCE data to be released. Overall, markets are expected to remain relatively subdued this week as Thursday marks Thanksgiving Day for the U.S.
(Related insight: Register for the December webinar, "Treasury 2022: Opportunities, Priorities, and Trends")
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