USD/PKR tested December 9th lows on Wednesday after the Federal Reserve left the target range for the federal funds rate intact at 1.50%-1.75%, in line with expectations. The bank’s stance was seen as appropriate to support sustained growth, sound labor market and inflation rate close to target. The Fed also kept its economic growth forecast for 2019 without change at 2.2%, while expecting 2% growth in 2020.
The bank’s inflation projections remained unchanged compared to September forecasts — 1.5% in 2019 and 1.9% in 2020.
13 out of 17 Fed policymakers expect interest rates to remain unchanged until at least 2021, while 4 expect only one hike in 2020. Earlier on Wednesday, a report by the US Labor Department showed annual consumer price inflation accelerated more than expected to 2.1% in November from 1.8% in October. The annual core CPI rose 2.3% in November, matching both the rate of increase in October and the median analyst estimate. The CPI report, coupled with November’s robust job growth, supported the Federal Reserve’s decision not to cut borrowing costs further in the near term.
Meanwhile, a report by the Wall Street Journal, stating that the US and China officials were laying the groundwork to delay the additional 15% tariff on nearly $160 billion in Chinese imports this Sunday, added to market optimism. Kenny Polcari of Slatestone Wealth projected an “eleventh hour” announcement regarding a trade deal on Saturday night. Eric Robertson of Standard Chartered Bank noted that in case of no “phase-one” deal by Sunday, both countries may probably indicate they are “on hold”. Both scenarios are likely to heighten investor risk appetite.
On the other hand, in a client note, DBS analysts stated “US remains unwilling to meet China’s term to roll back existing tariffs in exchange for its purchases of US agricultural products.” Therefore, “the final decision to delay tariffs rests with US President Donald Trump.”
The US Dollar Index was little changed at 97.083 in late Asian trade on Thursday, not far from yesterday’s five-week low (97.015).
Today, at 13:30 GMT, the Bureau of Labor Statistics is to report on the US Producer Price Index performance. Annual producer prices probably rose 1.2% in November, according to market consensus, accelerating from 1.1% in October (the slowest increase in three years).
Meanwhile, the nation’s annualized core producer price inflation, which excludes prices of food and energy, probably accelerated to 1.7% in November from 1.6% in October. Faster-than-anticipated PPI acceleration would have a limited bullish effect on USD, as it would suggest potentially higher consumer price inflation.
Also at 13:30 GMT the US Labor Department will report on jobless claims. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended December 6th, probably rose to 212 000, according to expectations, from 203 000 in the preceding week. A smaller-than-expected increase in claims would support USD, suggesting healthy labor market.
USD/PKR was up 0.42% to 154.975 in late Asian session on Thursday.
