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By xemarketanalysis October 17, 2017 2:22 pm
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    XE Market Analysis: US Dollar Gaining on Latest Fed Chair Speculation


    • USD gaining across the board on reports that Trump is leaning towards a hawkish Fed Chair candidate.
    • GBP under pressure as two new members of BoE are not ready to back a rate hike yet despite inflation remaining at 5-year high.
    • EUR soft despite rise in German investor morale, inflation still below ECB's target.
    • EU continues to push UK for more concessions in Brexit negotiations.
    • AUD is fairing well, limited reaction to upbeat RBA minutes. 
    • Oil prices remain firmer as tensions rise between Iraqi and Kurdish forces. 


    The Dollar is on the rise again after reports that Donald Trump was favoring economist John Taylor to head the Fed, someone viewed by markets as being in favor of higher interest rates. Taylor, an advocate of a rules-based approach to monetary policy would make a faster pace of tightening that would likely boost the Dollar. There are at least six candidates in the frame, and Trump has appeared to signal at least a few of them as being favorites following their interviews for the job.


    The US Dollar is strengthening on reports of a more hawkish candidate (see highlight), helped also by industrial output rising 0.3% as forecast in September. With the December rate hike fully priced in, and little momentum on Trump's key legislative agenda, the Dollar's upside may be limited somewhat in the days ahead. 


    The Pound is down across the board after the BoE’s newest MPC members both signaled they weren’t ready to back a rate hike next month due to “very weak” wage growth, and the risk of a premature rate hike being a mistake needing more cuts in the future. The dovish comments followed data that showed inflation hit a 5-year high of 3% in September, with Governor Carney saying the UK still faces a trade-off between inflation above target and supporting jobs and economic activity.


    The Euro is slightly softer after Eurozone CPI was unchanged from the flash estimate of a 0.4% gain in September from August, and 1.5% year-on-year. Germany's ZEW monthly economic sentiment index rose to 17.6 in October, as well-filled industrial order books underpinned ever more broad-based growth. This suggests the economy will retain solid upward momentum heading into the tail end of the year.


    The Loonie is weak, down 0.4% versus its US counterpart as markets bet on a more hawkish Fed Chair, and the Canadian Dollar suffers from NAFTA concerns.


    The Aussie Dollar is holding its ground, supported by upbeat views on the economy by the country's central bank, implying further cuts in interest rates were not warranted. However, the RBA also signaled it was nowhere close to considering raising rates and referenced that a stronger Oz Dollar would dampen growth and weigh on inflation.


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