Weekly economic and financial commentary: US dollar stumbles to start the year

Summary

United States: 2021 is not over yet

  • Inflation is picking up and consumer activity is slowing, data covering the month of December show. The Consumer Price Index (CPI) rose 7.0% year over year, the fastest rise in nearly 40 years. Similarly, the producer price index (PPI) increased by 9.7% over the year. Meanwhile, retail sales unexpectedly fell 1.9% in the last month of the year.
  • Elsewhere, the NFIB Small Business Optimism Index hit 98.9. Industrial production fell 0.1% as supply constraints dampened manufacturing output. Consumer confidence fell to 68.8 in January, the first solid sign that Omicron’s surge is weighing on economic activity.
  • Next week: housing starts (Wednesday), existing home sales (Thursday), leading index (Friday)

International: UK GDP grows as Australian retail sales increase

  • In the G10, UK GDP in November rose 0.9%, while retail sales in Australia rose 7.3% month-on-month in November, the biggest gain since May 2020. In emerging markets, pricing pressures remain in Brazil, as December CPI came in higher than expected at 10.06% yoy, still well above target 3.5% from the Central Bank of Brazil for 2022.
  • Next week: Chinese GDP (Monday), UK CPI (Wednesday), Japanese CPI (Friday)

Interest rate watch: When will the Federal Reserve reduce its balance sheet, and by how much?

  • The outlook for US monetary policy has changed considerably in recent months. With monetary policy tightening on the horizon, market attention has turned to possible reductions in Fed holdings, which currently total nearly $9 trillion, down from $4.2 trillion before the pandemic. .

Credit market snapshot: Mortgage rates are on the rise

  • According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage jumped almost a quarter of a percent this week, from 3.22% to 3.45%, the highest level since the start of the pandemic in March 2020.

Topic of the week: The US dollar stumbles to start the year

  • A hawkish change from the Fed was not enough to stop the US dollar from falling to start 2022. After a year in which the broad dollar index (DXY) rose nearly 6.5%, in the first few weeks this year, the same index fell by just over 1%.

Full report here.

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