Forex Official Blog

US Dollar Declines May Continue as US Retail Sales are Expected to Fall for 5th Straight Month

The US dollar was already falling across the majors this morning when the release of US economic data at 8:30 ET suggested that the Federal Reserve will indeed cut rates aggressively next week.

First, the US import price index fell by the most since record-keeping began in 1989 at a rate of 6.7 percent during November, bringing the annual rate of price growth to a 6-year low of -4.4 percent. The decline wasn't entirely unexpected, given the strength of the US dollar and plunge in commodity prices. In fact, according to the Labor Department, petroleum import prices plummeted 25.8 percent in November alone. Meanwhile, initial and continuing jobless claims surged to the highest levels since 1982, suggesting that the US unemployment rate could climb further from its 15-year highs of 6.7 percent. The National Bureau of Economic Research (NBER) has already declared that the US economy fell into recession in December 2007, but the labor market data only suggests that the recession will continue through the end of the year and into 2009.

Looking ahead to Friday, the Commerce Department’s release of US retail sales at 8:30 ET is forecasted to fall negative for the fifth straight month in November at a rate of -2.0 percent. Such a decline won’t be entirely surprising given the combination of the jump in the unemployment rate to a 15-year high, the continuing collapse in the housing sector, and persistently tight credit conditions. Later in the morning, the preliminary reading of the University of Michigan’s consumer confidence survey is forecasted to fall even further to a 28-year low of 54.8 in December from 55.3. Traders should beware that while this report has a 10:00 ET official release time, it tends to hit the wires a few minutes early, which can sometimes spark a bit of a “surprise” factor in the markets. Overall, disappointing retail sales and sentiment figures could weigh on the US dollar, especially as the Federal Reserve is anticipated to cut rates on December 16 by at least 50 basis points to 0.50 percent.

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