FX Daily: Government shutdown averted

The dollar continues to claw back some of Tuesday's losses after US October retail sales suggested that the consumer is still spending. Also helping has been the Senate's support of a stop-gap funding bill that kicks the risk of a government shutdown into 2024. Expect more rangy price action in FX markets today, with the focus on speakers and US claims data.

USD: Bouncing around

The dollar is drifting higher as investors continue to assess whether the large drop on Tuesday was the start of something meaningful or just more noise in an uncertain environment. We have heard a couple of Federal Reserve speakers still holding out the risk of a further hike, but for the time being, US money markets seem pretty confident that the Fed cycle is over and have now priced 90bp of easing in 2024. Yesterday's release of US October retail sales failed to kindle this week's dollar bear trend and the Senate's support for a stopgap funding bill has removed the risk of a dollar bearish government shutdown at midnight on Friday.

Where does that leave us? Confidence that the Fed tightening cycle is over should be positive for the rest of the world currencies - especially those that are very sensitive to higher interest rates. Yet with overnight rates in the US at 5.4%, the dollar is an expensive sell and the bar is high to invest elsewhere. That is why - as we conclude in our 2024 FX Outlook: Waiting for the tide to come in - the dollar bear trend is going to take some time to build and its more intense period may not be until 2Q24.

For today, the focus will be on the weekly jobless claims data and industrial production. Any spike in jobless claims could hit the dollar. We also have a few Fed speakers today - most from the hawkish end of the spectrum. 

Look for DXY to trade in something like a 104.00-104.85 range for the short term.