US dollar higher after US data

Yellen comments as expected

US Weekly Initial Jobless Claims 235k, Lowest Level Since 1973

The Department of Labor said 235,000 new jobless claims were filed during the week ending November 12, a decline of 19,000 from the prior week’s unrevised level of 254,000. Today’s data represents the lowest level of claims since the week of November 24, 1973. The streak of initial jobless claims below 300k now extends to 89 consecutive weeks, the longest since 1970. The data was much better than the analyst consensus estimate of 257,000 new claims, according to a Thomson Reuters survey.

While the drop was much larger than expected, the DoL said there were no special factors contributing to the decline.

Taking week-to-week volatility into consideration, the four-week moving average declined by 6,500 to 253,500 from last week’s average of 260,000, revised higher by 250 from 259,750.

Individuals continuing to receive unemployment benefits as of the week ending November 5 declined by 66,000 to 1.977 million from the prior week’s upwardly revised level of 2.043 million (up from 2.041 million).

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Yellen Talks, USD Hits New High

Fed Chair Janet Yellen spared the U.S. dollar Thursday by avoiding any talk about her discomfort with the recent surge in U.S. yields. Going into her joint testimony on the economy and monetary policy, many investors expected the Fed Chair to confirm that rates are rising in December and manage lower the expectations for further tightening next year. However she made no mention of what happens beyond December and none of the members of Congress raised questions about this during the Q&A session. Instead, Yellen’s testimony ended positively with the main takeaways being her confidence in the economy and the progress the Fed is making toward its inflation and employment goals. She indicated that waiting too long could mean the need to tighten faster later, which could spur excessive risk taking -- comments that are consistent with a hawkish bias. While she also felt that the state of the economy warrants only gradual rate increases, she did not suggest they would hike in December and then pause in early 2017 as her colleague Fed President Bullard indicated. Investors were worried about less-dovish future guidance and when the risk was lifted, USD/JPY charged toward 110 and EUR/USD broke 1.0950.

While we continue to believe that the December FOMC statement will be less hawkish, the Fed chair clearly did not want to detract from their plans for tightening next month -- even if it means that it could alleviate the rise in the U.S. dollar and yields. Another way to look at this is that she gave investors the green light to send the dollar to new highs. The latest U.S. economic reports helped to support her view with housing starts and building permits rising strongly. Consumer prices also increased in October, which contrasts with the flat reading in PPI. Jobless claims dropped to 235K from 254K to its lowest level in 40 years. The only miss was the Philadelphia Fed manufacturing index, which dropped slightly more than expected. With no major U.S. economic reports due on Friday, we expect the dollar to remain bid with shallow retracements attracting additional buying interest.

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US Dollar (USD) Forecast To Improve Following Yellen’s Interest Rate Hints

US Dollar (USD) Exchange Rate Gains Forecast

The US Dollar (currency : USD) is expected to outperform the other sixteen most actively traded global currencies during the remainder of this week’s session following comments from US Federal Reserve Chair Janet Yellen earlier today. America’s top central banker was testifying in the US Congress and her statement has ramped up investors’ expectations regarding the likelihood of a near-term US interest rate hike.

Hawkish Yellen Comments Boost USD to GBP, EUR Exchange Rates

Yellen told the assembled US lawmakers that,

‘Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.’

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November 2016 KC Fed manufacturing index 9 vs 18 prior

Details from the November 2016 KC Fed manufacturing index 18 November 2016

• Composite 1 vs 6 prior
• New orders 6 vs 14 prior
• Employment 1 vs 7 prior
• Prices paid 16 vs 0 prior
• Prices rec'd -2 vs -5 prior

October 2016 US Chicago Fed national activity index -0.08 vs 0.00 exp

October Chicago Fed National Activity Index Strengthens To -0.08, 3-Month Average Disappoints

The October Chicago Fed National Activity Index (CFNAI) strengthened to -0.08 for September from a revised -0.23 reading for September, which was originally reported as -0.14.

The three-month average declined slightly to -0.27 for October from -0.20 previously and this was the weakest reading since May 2016.

34 of the 85 individual components made positive contributions for the month, while 51 were negative, although 50 indicators improved from September levels.

The contribution from production industries rose slightly to -0.04 from -0.10 for September with industrial production unchanged for the month. The sales and orders index was little changed at -0.01 from -0.03 in September.

The employment component recorded a reading of unchanged for the month from -0.01 previously, while the personal consumption index improved to -0.03 from -0.09.

For the third successive month, none of the indicators were in positive territory for the month, although the overall movements were limited and all indicators did improve from September, which will help underpin confidence.

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US initial jobless claims 251k vs 250k exp

October US new home sales 563K vs 590K exp

New home sales for October

• Prior was 593K (revised to 574K)
• Sales down 1.9% m/m
• Prior +3.1% m/m (revised to +1.2%)