US economic resilience supports a less dovish Fed rate path
Following three straight months of upside surprises in US retail sales, the September data release overnight added to the fourth. US consumers continue to reflect strong resolve in spending, with headline retail sales outperforming estimates at 0.4% (est 0.3%), while the core read crushed expectations at 0.5% (est 0.1%). With consumer spending accounting for about 65 – 70% of the US gross domestic product (GDP), the Atlanta Federal Reserve (Fed) GDPNow now sees Q3 GDP growth at 3.4% rate, up from previous 3.1%.
Coupled with the recent blowout job report and higher-than-expected consumer inflation data, the recent trend of upside economic surprises made the Fed’s 50 basis point (bp) in September looks like an overreaction. Policymakers will likely have to tread carefully in its rate-easing path ahead to avoid an inflation resurgence, with economic data leaning more and more towards putting the easing process on pause. For now, steps of 25 bp cuts over the next few meetings remain anchored as the market consensus, but another blowout jobs data for November could likely challenge that.
US Dollar Index: Back to retest its 200-day MA
The significant beat in US retail sales saw US Treasury yields edge higher, giving the US Dollar further reason to extend its gains overnight. This brought the US dollar back to retest its 200-day moving average (MA), which may offer some near-term resistance, along with its overbought technical conditions on the daily relative strength index (RSI). Nevertheless, any dips may leave the formation of any higher low on watch, with support to watch at the 102.30 level where an upward support trendline stands.
