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USD: Could the rise in consumer confidence can't hold to reality?
The USD kept the bullish behavior and rally on Friday, helped a bit by a rise in the University of Michigan/Reuters US consumer confidence survey. And indeed, the index reflected improvement for the second consecutive month in Aug, going up to a 4-month high of 61.7 from 61.2, though it just missed expectations of speculators which states 62.0. Looking at each point of this report, the pull-back in oil prices since around middle of July appears to have had a tremendous impact, as the most noticeable change in the index was the drop in 1-year inflation expectations to 4.8% from 5.1%. Likewise, with inflation expectations easing, consumers are feeling a bit better about the economic outlook, as that index rose to a 5-month high of 56.8 from 53.5. Nevertheless, with job losses in the US mounting, credit conditions still hold tight, and food and energy prices still a bit higher, the index gauging sentiment on current economic conditions slumped to 69.3 from 73.1. This may hint that the average US consumer is not necessarily ready to head to go to the malls and stores and shop again, spend and basically live the life of wealth just because oil futures are down, it means there will be no immediate re-action from the consumer upon seeing numbers on a report if nothing really changed, and as a result, significant downside risks to growth still remain. More tellingly, Credit Suisse overnight index swaps moved sharply on Friday to price in 38bps worth of hikes by the Federal Reserve over the next 12 months, down from 71bps on Thursday. Meanwhile, forex positioning from forex software providers show that traders are growing less bearish on the currency. the shift may hint that the USD could be in for losing a bit of what achieved against the pairs, soon and combined with the change in interest rate expectations for the Fed, next week we might finally see a break in the wall in the strongest USD rally we have seen in the last 2 years.
06:57
Posted on Aug-17-2008
