Retail sales data on Wednesday (Sept. 16) were mixed, with a key retail sales indicator unexpectedly falling, indicating a novel Coronavirus has stalled an economic recovery. The DOLLAR index fell in a sharp shock, now traded at the 93 level, spot gold is down after a rapid rebound, short – term out of the V – shaped reversal. For now, the markets are holding their breath for the Fed’s rate-setting decision, due at 2 a.m. Beijing time Thursday, and for chairman Colin Powell’s subsequent press conference. The meeting is the last before the us election and the first time the Fed has released its economic and interest rate forecasts for 2023. These forecasts are expected to show that even then the Fed will keep interest rates at zero.
Us retail sales performance poor, the Fed’s interest rate decision to hit the dollar gold short-term volatility intensified
The dollar fell on Wednesday ahead of the Fed’s economic forecast, while optimism about a global economic recovery also reduced demand for the greenback.
Markets will be watching the Fed’s forecasts for fresh signs of when the central bank may raise interest rates. Any details of its new inflation targeting policy, and a possible shift to buying more longer-dated treasuries as part of its quantitative easing program, will be in the spotlight.
But the Fed may have run out of new ways to ease monetary conditions after Chairman Colin Powell announced a new inflation policy last month. The policy would allow price pressures to rise above the previous 2 per cent target before raising interest rates.
“I think the chances of a dovish surprise are quite high right now, in part because of the limited tools available,” said Vassili Serebriakov, currency strategist at UBS in New York.
The dollar fell 0.1 percent to 93.00 against a basket of currencies, recovering quickly after hitting a low of 92.79 earlier in the day before retreating again from its peak.
Strong Chinese August data and optimism about the novel Coronavirus vaccine have boosted risk sentiment and reduced demand for the DOLLAR this week.
“I think the biggest drivers this week were stronger August activity data from China and continued optimism about vaccines,” Serebriakov said.
Industrial output grew at its fastest pace in eight months in August, while retail sales rose for the first time this year, data released on Tuesday showed.
“There’s a new theme that people are starting to embrace, which is that the governance level in China is much better than anywhere else,” said Davis Hall, head of Asian capital markets at Indosuez Wealth Management.
The offshore yuan rose to 6.7536, its strongest level since May 2019.
U.S. data on Wednesday showed consumer spending slowed in August and a key measure of retail sales unexpectedly fell.
Commerce Department data showed retail sales rose 0.6 percent in August, below expectations of 1 percent and 1.2 percent, the third straight monthly decline.
Separately, core retail sales fell 0.1 per cent in July after a downwardly revised 0.9 per cent rise in July.
Us consumer spending appeared to slow in August as millions of Americans were cut back on extended unemployment benefits, further evidence that the recovery from the new coVID-19 recession is faltering.
Gold rose on Wednesday as the U.S. Federal Reserve was expected to announce its policy stance, which is expected to reaffirm its dovish monetary policy stance to support the recovery from the coronavirus crisis.
Spot gold fell $17 to $19,973.16 an ounce, its highest level since September 2, before recovering quickly from a low to just below the $1970 mark and breaking out of a V-shaped reversal in the short term.
Some economists expect Powell to tread carefully to avoid any signs of bias before the election, but Reinhart said he would do the same after. The fed’s next two-day meeting begins on November 4th, the day after the election.
“If you’re the Fed, you want to keep a low profile for the next two meetings after the election.” He noted that the Fed would not want to be seen as responding in any way to the election results.
Some strategists warned that the market could be disappointed by the Fed’s statement on Wednesday, which is not expected to provide any guidance on bond purchases.
But Rieder said he expected the Fed to revise the program at its next meetings, possibly increasing its purchases of Treasuries and reducing its $40 billion monthly mortgage purchases.
But Mark Cabana, head of short-term interest rate strategy at Bank of America, said he expected the Fed to be satisfied for now with its bond-buying program, which is similar to previous quantitative easing programs.
Reinhart said if the Fed does change its program, it could cut back on its purchases of mortgages at some point because the Fed’s influence in the market is already considerable.
“The weak economic data supports the view that the Fed is going to stay accommodative and congress is going to come out with another stimulus,” Meger said. “Those are the main pillars that are supporting gold.”